Guest Post by EWI
Evidence of Another Even More Sweeping Housing Bust is Already Starting to Appear
Editor’s note: With permission, the following article was adapted from the October 2014 issue of The Elliott Wave Financial Forecast, a publication of Elliott Wave International, the world’s largest market forecasting firm. You may review an extended version of the article for free here.
In February, The Elliott Wave Financial Forecast discussed the great boom in New York City’s residential real estate and its keen resemblance to what happened in 1929, when the demand for luxury housing also spiked to previously unseen heights. At 133 East 80th Street, we found this plaque commemorating the earlier era’s brick-and-mortar monuments to a Supercycle degree peak in social mood.
The plaque went up in 2010, demonstrating the strength of the bullish echo from the end of Supercycle wave (III) to the final after-effects of Supercycle wave (V). Another link to the prior manic era is that many of Rosario Candela-designed apartment towers from the 1920s have become “some of New York’s most coveted addresses.” As architectural historian Christopher Gray puts it, Candela is now Manhattan real estate brokers’ “name-drop of choice. Nowadays, to own a 10-to 20-room apartment in a Candela-designed building is to accede to architectural as well as social cynosure.”
Of course, the most brilliant stars in the New York skyline are those that sell for the highest prices, and that honor belongs to the brand new penthouses that the Financial Forecast talked about in February. Most are popping up along the rim of Central Park, forming a ring of cloud-topping towers that will be so pronounced it is already called Billionaires’ Row.
Here is a short video that shows two of them as they were topped off in February.
After one of my cynical posts finger pointing at a Fed talking head (in this case Janet Yellen) and answering her absolutely flawed rationalizations for the masses line by line, a financial blogger informed me this morning that the theme is picked up by the New York Times with an article written by former M&A banker William Cohan.
How Quantitative Easing Contributed to the Nation’s Inequality Problem –NY Times
This is good. The MSM is highlighting something very real and in my opinion, quite evil (there, I said it). But let’s clean up NYT’s theme a little bit too, just as we did Yellen’s outrageous remarks.
Quantitative easing adds to the problem of income inequality by making the rich richer and the poor poorer. By intentionally driving down interest rates to low levels, it allows people who can get access to cheap money on a regular basis to benefit in extraordinary ways.
QE, at least theoretically and on a surface level in a debt-based economy/society helps the little guy because he is borrowing on the long end and QE buys up his distressed MBA and provides him loans at lower long-term interest rates. It is in ZIRP (zero Fed Funds) that he gets screwed because while the banks get a ‘can’t lose’ profit motive, peoples’ ability and inclination to save are all but destroyed, or better yet effectively outlawed by policy.
The rest of the article goes on to illustrate just how rigged this game is and how we have changed nothing in the 1.4 decades since Alan Greenspan kick started the Age of ‘Inflation onDemand’©, where every problem has a financial solution and the rich get massively richer and the majority get screwed… every step of the way.
Today the 2 Horsemen rode newly brave bulls back out of town.
Nominal yields rise and the curve drops today. Its message continues to be risk ‘ON’ with the relief bounce in markets.
Guest Post by Michael Ashton
The following is a summary of my post-CPI tweets. You can follow me @inflation_guy (or follow the tweets on the main page at http://mikeashton.wordpress.com)
- Core CPI +0.14%, close to rounding to +0.2%. An 0.2% would have caused a panic in TIPS, where there have been far more sellers recently.
- y/y core to 1.73%, again almost rounding to 1.8% versus 1.7% expected. This just barely qualifies as being “as expected”, in other words.
- Core services fell to 2.4%, but core goods rose to -0.3% y/y.
- OER re-accelerated to 2.71% from 2.68% y/y. It will go higher.
- really interesting that core goods did not weaken MORE given dollar strength. $ strength is overplayed by inflation bears.
- Apparel went to 0.5% y/y from 0.0%. That’s the category probably most sensitive directly to dollar movements b/c apparel is all overseas.
- Accel major groups: Food/Bev, Apparel, Recreation (24.1% of basket). Decel: Housing, Transp, Med Care, Educ/Comm (72.5%).
- Though note that in housing, Primary rents rose from 3.18% to 3.29%, and OER from 2.68% to 2.71%, so weakness is mostly household energy.
- That’s a new high for primary rental inflation. Lodging away from home also went to new high, 5.04% y/y. But it’s choppier.
- Airfares continued to decelerate, -3.01% from -2.71%. Ebola scares can’t have helped that category, which most expected to rebound.
- But these days, airfares are very highly correlated to fuel prices (wasn’t always the case). [ed note: see chart below]
- In Medical Care, pharmaceuticals rose to 3.08% from 2.72%. But the medical services pieces decelerated.
- Decel in med services is the surprise these days as the passage of the sequester cause positive base effects.
- The weakness in med services holds down core PCE, too. Median CPI continues to be a better measure as a result.
- College tuition and fees 3.36% from 3.32%. Still low compared to where it’s been. Strong markets help colleges hold down tuitions.
- Core CPI ex-housing partly as a result of continued medical care weakness is down to a new low 0.877% from 0.911%.
- That continues to be the horse race: housing versus a wide variety of other things not inflating. Yet.
Just as we (well, NFTRH) did with the GDX gold stock ETF over the summer, when we gauged resistances 1, 2 & 3 on the Ukraine hype b/s (GDX stopped at #3), we now have established resistances 1, 2 & 3 on the S&P 500, DOW and NDX on the rebound rally, which itself we had anticipated.
SPY hit a trend line today, which I have a feeling will not hold as ultimate resistance. So understanding that in my nature I have a sort of chronic mental problem with being a strong short (this is me the faulty trader speaking, not me the top notch* macro market manager), I took the small step of shorting SPY today. No leverage, just a short. This is against some still held longs but the last 2 weeks have been pretty good and I want to seek out balance again.
This chart of SPY shows what could be the ultimate resistance level beginning at 196, but the indexes (ref. SOX post earlier) have started hitting some bounce targets so I thought it was worth a shot to begin creeping shorter the stock market.
* Sorry, but that’s just how I feel about my own work. It continually adjusts the faulty trader and keeps his head on straight.
Guest Post by Bill Bonner
That we live in an age of man-made wonders is beyond dispute. Painless root canals. Tinder. Central bank price controls.
We were traveling hard over the last couple weeks. Somewhere along the way we picked up a cold, which dogged us from Vermont to Maryland’s Eastern Shore. But the security X-ray at Nashville International Airport seemed to finally knock it out.
Global stocks have lost more than $3 trillion of their value so far this month. But the authorities rushed to the rescue like a surgeon taking out a ruptured gallbladder.
As St. Louis Fed president James Bullard told Bloomberg TV (reprinted from yesterday’s Diary):
I found myself feeling self-satisfied at the profit already taken in LSCC and the growing profits in SIMO and INTC (all added on the Semi sector wipe out as bulls puked them up left and right), to go along with the profit in MLNX, which I held through the blood bath last week. I found myself satisfied and realized that might not be a good sign.
I looked at the chart of the Semiconductor index and saw that it has hit my bounce expectation (not that it can’t bounce higher) and thought ‘book it’. So I sold the first 3 items mentioned and hold MLNX for another hour, week or month. In NFTRH we are watching correction leaders for clues on the rebound rally.