Home Prices Continue To Rise Faster Than Wage Growth

By Anthony B. Sanders

Las Vegas Fastest, Washington DC Slowest, First Time Homebuyers Face Grim Reality

Case-Shiller has released their June housing report.

The 20 metro home price index rose 6.31% YoY. The bad news? Hourly earnings for US private sector workers is only growing at 2.70% YoY.

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As they say, all real estate is local. The fastest growing city in term of home prices is Las Vegas at 13% YoY with Seattle in close second at 12.8% YoY.

Continue reading Home Prices Continue To Rise Faster Than Wage Growth

COT Blue: May 29 Not Trade War

By Jeffrey Snider

I have to hand it to my colleague Joe Calhoun. In recent months, he’s been able to almost perfectly predict the Trump Administration’s response tactics to all this trade war stuff. Back in July, it was mere comments on the dollar. Not long thereafter, aid to farmers caught up in the China dispute. When that happened, Joe predicted it wouldn’t be long before NAFTA.

According to my record keeping, Mr. Calhoun is now three for three. You might only give him half credit for this latest one since technically the current NAFTA news only includes Mexico and doesn’t yet touch Canada. Yet. With the midterms approaching, you can see where all this is going.

That was pretty much Joe’s point all along. Politics is somewhat predictable in this way. And it reveals something else perhaps more relevant to what’s going on. Is this all really trade war stuff?

The political math adds up in that direction. The Trump administration has been messing with China which would only create collateral domestic damage. Betting on a booming economy, in the data anyway, the President need only clean up the rough spots. He’s doing it and one right after another.

Unlike earlier in the year, however, markets aren’t impressed; at least, those markets that actually count (stocks have no bearing on the real economy). The eurodollar futures curve, for one big example, wasn’t at all impressed and barely budged on today’s NAFTA news. In the all-important EDM 2020-EDM 2021 inversion, it had lessened intraday by all of 1 bps.

Continue reading COT Blue: May 29 Not Trade War

Psychological Overhang: Full Week Ahead Preview

By Heisenberg

U.S. politics and trade are likely to dominate the headlines this week, which means market participants will yet again be forced to cope with the psychological overhang from Donald Trump’s ongoing legal trials and tribulations (and “trials” can now be taken quite literally) and the threat of another escalation on the tariff front.

Last week was easily the worst week of Trump’s presidency. In addition to Michael Cohen pleading guilty and implicating the President in open court, Paul Manafort was convicted on eight counts and Trump Organization CFO Allen Weisselberg was granted immunity by federal prosecutors, a development that bodes particularly ill given how much he likely knows. It also seems likely that Trump will move against Jeff Sessions sooner rather than later.

On trade, there’s progress on the NAFTA front as Robert Lighthizer appears to be closing in on a deal with Mexico, but low-level talks between the U.S. and a Chinese delegation went nowhere last week, setting the stage for Trump to move ahead with duties on an additional $200 billion in Chinese imports. Here’s BNP with a bit of color:

Continue reading Psychological Overhang: Full Week Ahead Preview

Powell, Greenspan and Whatever it Takes

By Doug Noland

Fed Chairman Powell is in a tough spot, one made no easier now that he’s on the receiving end of disapproving presidential tweets. The global Bubble has begun to falter, which only exacerbates divergences between various markets and economies. The U.S. is booming, while China struggles and EM economies now stumble into the dark downside of an epic cycle. The U.S. economy and markets beckon for tighter financial conditions, while higher U.S. rates pose significant danger to fragile global markets already confronting a major tightening of financial conditions.

Powell played it safe in Jackson Hole. I imagine he’d have preferred to sit this one out. As such, his presentation was too heavy on rationalization and justification. The FOMC is trapped in Greenspan-style “baby steps,” and it is curious that the Fed Chairman would choose to praise Alan Greenspan for his nineties policy approach:

Continue reading Powell, Greenspan and Whatever it Takes

Architecture Billings Index Flashes Warning on Economy

By Tom McClellan

Architecture Billings Inquiries Index
August 24, 2018

The news of a 4.1% rate of GDP growth in Q2 of 2018 got the financial media excited.  4.1% was the rate of change compared to the prior quarter.  When we use a 1-year lookback, it is not quite that strong of a number, but still good news in terms of what it does to getting more people working and paying taxes.

The troubling news this week is that the latest data from the American Institute of Architects, http://www.aia.org, shows that their Architecture Billing Inquiries Index is headed downward, and that tends to be a problem for future GDP numbers.  This week’s chart shows a 6-month moving average of that Inquiries Index, and its recent downward movement does not offer a lot of hope for another really strong quarter for GDP in Q3.

Continue reading Architecture Billings Index Flashes Warning on Economy

Mortgage Purchase Applications Rise 4.2% WoW! And 2 More Fed Rate Hikes To Go

By Anthony B. Sanders

But Refi Apps Still Dead and Purchase Apps Declining

The good news is that mortgage applications, according to the Mortgage Bankers Association (MBA) rose 4.2% from the preceding week. Both purchase and refinancing applications rose.

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The bad news? Refi applications are still dead.  Notice that the last large increase in mortgage rates (end of 2016) produced a large decline in refi applications. But the large increase in 2018  has produced a much smaller reaction.

Continue reading Mortgage Purchase Applications Rise 4.2% WoW! And 2 More Fed Rate Hikes To Go

Whose Tightening is it Anyway?

By Jeffrey Snider

I suppose it’s only fair. After all, they started it. Earlier in the year, Federal Reserve officials including Chairman Jay Powell suggested it was all Trump’s fault. The abrupt difficulties presented by the dollar were, they said, the result of tax cuts swelling the deficit and thereby threatening capital markets with a “deluge” of Treasury bills to digest.

This past weekend, apparently, the shoe was on the other foot. The President was, it seems, under the impression, according to the Wall Street Journal, that Powell was in favor of “cheap money” which is something any President would like. This now “hawkish” stance under the new Chairman is not to Trump’s taste.

President Trump told donors he is unhappy with the Federal Reserve’s recent moves to raise interest rates and raised doubts about the man he placed in charge of the institution, Jerome Powell, people in attendance at a fundraising event said.

It seems quite obvious that the dollar is starting to grab everyone’s attention again. The President has been up to now quite firm about his own economic performance; just look at that sparkling unemployment rate! Suddenly, it’s all Powell’s fault?

Continue reading Whose Tightening is it Anyway?

Weekly S&P 500 #ChartStorm

By Callum Thomas

Those that follow my personal account on Twitter will be familiar with my weekly S&P 500 #ChartStorm in which I pick out 10 charts on the S&P 500 to tweet. Typically I’ll pick a couple of themes and hammer them home with the charts, but sometimes it’s just a selection of charts that will add to your perspective and help inform your own view – whether its bearish, bullish, or something else!

The purpose of this note is to add some extra context beyond the 140 characters of Twitter. It’s worth noting that the aim of the #ChartStorm isn’t necessarily to arrive at a certain view but to highlight charts and themes worth paying attention to.

So here’s the another S&P 500 #ChartStorm write-up!

1. S&P500 Long Term Earnings Growth Estimates: First up is a look at a peculiar yet astonishing indicator, the Thomson Reuters IBES consensus estimate of long term earnings growth for the S&P500.  The main point here is that it’s at the highest level since the dot com boom.  Back then it was euphoria about the new economy, now it’s the tax cut extension from the previous reflation turnaround.  I would say it shows a certain element of euphoria on the earnings outlook, and the question is how long this higher level of expected growth can hold up? (and how much higher can it get from here?).

Bottom line: Long term earnings growth estimates are at the highest point since the dot com bubble.

Continue reading Weekly S&P 500 #ChartStorm

Instability

By Doug Noland

With the Turkish lira down another 6.6% in Monday trading, global “Risk Off” market Instability was turning acute. The U.S. dollar index jumped to an almost 14-month high Monday, as the Turkish lira, Argentine peso, Indian rupee and others traded to record lows versus the greenback. The South African rand “flash crashed” 10%, before recovering to a 2.3% decline. Brazil’s sovereign CDS jumped 14 bps Monday to a six-week high 252. Italian 10-year yields jumped 11 bps to 3.10%, near the high going back to June 2014, as the euro declined to one-year lows.

The Turkish lira surged 8.4% Tuesday, jumped another 6.8% Wednesday and then gained an additional 1.9% Thursday. Wild Instability then saw the Turkish lira drop 3.1% during Friday’s session, ending the week up 6.9%. Qatar’s $15 billion pledge, along with central bank measures, supported the tenuous lira recovery.

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Collateral Silos And The Deflationary Gold Rush

By Jeffrey Snider

It was never really all that much. The best that might have been said was that it was a pause in the building of renewed deflationary pressures. The dollar had “risen” again especially in April and May, but then traded sideways through July. It wasn’t a rebound or even much that was positive, just less immediate heaviness.

That appears to be over with now in August; always August. The dollar is on the move which means the eurodollar is deficient. The squeeze is back and it is being felt almost across the board. Copper is down again as is gold. The metals are, and have been for years, quite clear as to what all this is.

Continue reading Collateral Silos And The Deflationary Gold Rush

Pure Corruption

By Jeffrey Snider

In December 1999, Princeton Professor Ben S. Bernanke wrote a relatively obscure paper largely denouncing the Bank of Japan’s shyness. Japan’s economy had by then been mired in its first Lost Decade, one which at that moment not everyone was sure should have been lost. It was fashionable at the time to pile on the BoJ.

Dr. Bernanke argued for extreme aggressiveness, truly radical experimentation. Big problems require equally big solutions. These were necessary because of the huge scale of the issue facing them. In conclusion, the future Fed Chairman wrote:

Japan is not in a Great Depression by any means, but its economy has operated below potential for nearly a decade. Nor is it by any means clear that recovery is imminent. Policy options exist that could greatly reduce these losses. Why isn’t more happening? To this outsider, at least, Japanese monetary policy seems paralyzed, with a paralysis that is largely self-induced. Most striking is the apparent unwillingness of the monetary authorities to experiment, to try anything that isn’t absolutely guaranteed to work. [emphasis added]

His larger point was valid, and poignant. In Japan’s case, as anyone’s might be in the same situation, there should be no stone left unturned when confronted by such a substantial break in economic function. A dislocation of that magnitude, meaning length of time if not depths to some 1930’s trough, demands emergency thinking rather than stolid patience almost to the point of indifference.

To be so relatively passive would be a crime, especially if the results were to be losing a decade of actual economic sufficiency. Dr. Bernanke argued for thinking way outside the box, for what else would be demanded by this sort of situation?

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US Dollar Purchasing Power Continues Falling At The Same Rate As Avg Hourly Earnings Growth

By Anthony B. Sanders

No REAL Gains For Middle Class

The purchasing power of the US Dollar for consumers has been declining since the creation of The Federal Reserve System in 1913. The decay in the US Dollar purchasing power has slowed in recent decades.

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Although the decay in purchasing power has declined since 1980, the yearly change in purchasing power (blue line) continues and almost completely offsets the yearly growth in average hourly earnings.

Continue reading US Dollar Purchasing Power Continues Falling At The Same Rate As Avg Hourly Earnings Growth