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.
Continue reading Evidence of Another Housing Bust…
With interest rates on the freer sections of the curve (basically everything but Fed Funds) rising, some sectors stand to be hurt if ‘Taper to Carry’ is a viable plan; and some sectors stand to gain.
The Housing Index made a high right into a window where Fed officials felt compelled by bond market dynamics to start jawboning the inevitable. As they got wind of global forces driving up rates the control freaks got their jawbones revved up with ‘taper’ talk.
Housing put in a negative divergence and rounded into a daily downtrend. It now sports a short term ‘W’ pattern that has popped it above the 200 day averages as we had expected a bounce due to poor sentiment and a bigger picture downtrend channel line (by weekly chart in NFTRH). This bounce should hold below 195 for the HGX to remain in bear mode.
The banks on the other hand responded well to our ‘Taper to Carry’ plan and have since helped firm T2C. This with growing volume of taper talk. Just as housing would suffer from rising rates, banks would benefit as they borrow short (and nearly for free) and lend long (at a markup).
BKX is at a channel top and has some negative divergence. So it could get dinged in here perhaps with the media poo pooing taper talk and renewed hopes for open ended QE if the economy starts to show some cracks.
Speaking of cracks, the whole media circus and mainstream financial sphere is smoking something other than organic weed right now. Look at how absolutely obsessed the financial media are about a simple question of whether or not the Fed will scale back on its bond buying. The market is hyper-fixated on every squiggle in the drama and every warble in Bernanke’s voice.
As of now however, the HGX and BKX (among several other indicators) continue to lean toward a coming QE taper. Let’s see if current trends hold up.
(e) = external link
Deflation Isn’t an Export; Crazy Talk is Michael Ashton 6.4.13
Out on a Limb James Howard Kunstler 6.4.13
Sell the Dollar? Case for Hard Currencies Axel Merk 6.4.13
Explaining the Gold Bull Market Steve Saville 6.4.13 (pdf)
Annual Report 2012 Federal Reserve Bank of St. Louis 6.4.13 (e)
Wounded Heart Bill Gross 6.4.13 (e)
Gameplan for a Completely Corrupted Market Cody Willard 6.4.13 (e)
Japan’s Easy Money Tsunami David Howden 6.4.13 (e)
March Housing Numbers B.I.G. 6.4.13 (e)
We have noted repeatedly that Operation Twist served to benefit strategic areas (like housing) with its purchases of long dated Treasury bonds, which kept rates down on the long end. We have also noted that Twist sought to sanitize these asset purchases by selling short-term Treasury bonds to keep the yield curve tame and snuff out any inflation signals that would come from a rising money supply. Enter Goldilocks.
It’s all lies. It is a painting rendered by a most brilliant of Fed chiefs playing tricks with the nation’s bloated debt load. People are buying the stock market now and they (and their investment fund managers) probably don’t give a damn about what created the rally. It’s Goldilocks and that’s all they are concerned with.
I distinctly remember watching the first yellow highlighted bullish pattern form. Here, don’t believe me? I am a perma bear? Here’s the post from back then (7.3.12):
Housing Index Targets Higher
I did not buy it because I find it difficult to buy things that I either don’t believe in or are entirely dependent upon overly powerful people doing things that should be illegal in order to manage markets to desired outcomes.
But the chart was the chart and it was bullish. HGX has since gone on to much higher levels than I had anticipated as it carries along the absolute dumbest, most greedy money on the planet in tow. These people were hiding in foxholes last summer.
Just remember that if you want to go chasing this market. These people are your co-sponsors.
Risk vs. reward on the broad US stock market stinks. I was not afraid to call it bullish last summer and I am not afraid to call it what it is now.