Month: November 2018

If one strategy report said it, hundreds have – now that the uncertainty of the election is over we can get back down to business as usual.

However, as former fund manager and FX trader Richard Breslow argues:

“I’m not sure what that will mean. Exactly why should the discordant factors that have made this such a trying year for so many traders suddenly have disappeared?”

I only mention this because, there are a lot of new and self-proclaimed sharpened market forecasts floating around that are meant to be our guideposts for the rest of the year. Suddenly a newfound certainty has once again asserted itself. They mostly sound reasonable. Yet I can’t help wondering if we shouldn’t consider whether we are in fact hearing a Siren song.

If we now have certainty, why is it so easy to see both sides of the coin everywhere you look?

China has a growth and leverage problem. But at least they haven’t given up on regularly trying additional measures to loosen financial conditions. They did it again this week by announcing new measures to ease access to capital for private companies.

They aren’t allowing themselves to be deterred from the lack of success from previous measures. In fact they acknowledge that this has been the case. Will the umpteenth time be the charm? What will be the outcome of the Trump/Xi meeting at the G-20 — and will it produce any believable progress in the aftermath? You had better pick a side if you want to bet large on this burgeoning Asian asset rally.

I was beginning to feel optimistic, so naturally yesterday Harvard Economics and Public Policy Professor Ken Rogoff published an article in the Guardian titled, “A Chinese Recession Is Inevitable-Don’t Think it Won’t Affect You.”

Is the dollar going up or down? U.S. issues aside, it won’t do it without a lot of help either way from the euro. But that currency is locked in a nasty range that has allowed just enough false breakouts as to serially catch traders off-sides. There aren’t many dollar bulls about. It’s strange that the market keeps thinking the ECB will be more hawkish than priced and the Fed less so.

Mean reversion needn’t happen on cue. Especially with headlines like this morning’s, “European Commission sees mounting Italian Risks”, “EU Under threat From ‘A Farage in Every Country,’ Michel Barnier Warns” And Spiegel Online echoed the increasingly common call that Chancellor Angela Merkel hasn’t gone far enough by only relinquishing her role as head of the CDU.

Latin America is a great place to be invested if you like holding a tiger by the tail. Just look at the disparity of exchange-rate forecasts for these currencies and you will realize it’s hard to make a lot of blanket generalizations.

Incidentally, the S&P 500 has bounced hard, right to an important technical pivot. What it does from here could greatly affect the prism through which traders view the investing environment. Say what you will, technicals have been asserting a powerful influence on things. Probably because no one seems to be able to craft a really compelling, and lasting, fundamental narrative.

With great risk can come great reward. There’s no doubt there are a lot of opportunities out there. But there is a palpable lack of any tolerance for losses, or frustration, among traders. The one trade we all agree on is that heightened volatility is here to stay.

That may be the first assumption worth questioning. Central banks would no doubt love for markets to go quiet. Which would suggest one trading strategy. A lot of other actors could make that not happen and that argues for a completely different one.

In fact, as Bloomberg Macro Strategist Mark Cudmore concludes, it’s worth emphasizing, in light of the powerful asset surges in the wake of the midterm election results, the results shouldn’t be a game-changer and it seems foolhardy to ignore that the Fed meeting today has the potential to reverse some of the latest moves.

It will doubtless remind investors that monetary policy is becoming less supportive as we get later in the economic cycle.

And one of the largest catalysts for asset volatility this year, the U.S.-China trade war, hasn’t suddenly faded, let alone disappeared, as a result of the election.

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Confirming the new Democrat-controlled House will press for major changes in US gun laws, following the latest mass shooting which took place overnight in Thousand Oaks, California, which left at least 13 people, including the shooter, dead, the incoming House Judiciary Committee Chairman, Democrat Jerry Nadler said on twitter that he will immediately “get to work on legislation that includes universal background checks to respond to the scourge of gun violence.”

He also said described the shooting as “senseless and preventable.”

We must find a way to stop the senseless, and many times preventable killings that are robbing our country of innocent lives. In the new Congress, we will immediately get to work on legislation that includes universal background checks to respond to the scourge of gun violence. https://t.co/7hbDsod9iA

— (((Rep. Nadler))) (@RepJerryNadler) November 8, 2018

The incoming Democratic Judiciary Committee chair will be busy: in addition to taking on the Republicans on gun legislation, Nadler will also be the man in charge of any investigation into Kavanaugh.

According to the Federalist, [Nadler and a friend] discussed two routes for investigating new Supreme Court Justice Kavanaugh. The first is to go after the FBI for how they handled the investigation into unsubstantiated claims he sexually assaulted women. “They didn’t even do a half-ass job,” he said. “They didn’t interview 30 witnesses who said ‘Interview me! I’ve got a lot to say!’” he said, while mimicking people waving their hands to be called on.

His other plan is to go after Kavanaugh because “there’s a real indication that Kavanaugh committed perjury.” He claimed that The Atlantic published an article about the allegations of a third woman. Then he claimed that when Kavanaugh was “asked at a committee hearing under oath when he first heard of the subject, he said, ‘When I’d heard of the Atlantic article.’ But there is an email chain apparently dating from well before that from him about ‘How can we deal with this?’” Nadler told the caller…

“The worst-case scenario — or best case depending on your point of view — you prove he committed perjury, about a terrible subject and the Judicial Conference recommends you impeach him. So the president appoints someone just as bad.”

One thing is certain: with Democrats planning all out war against Trump and a tsunami of legal challenges for decisions taken over the past two years, Nadler – whose name may not be known by most – soon will be.

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85-year-old Supreme Court Justice Ruth Bader Ginsburg has reportedly been hospitalized after fracturing three ribs in fall at court.

She went to George Washington University Hospital early this morning, according to emailed statement from Supreme Court.

“Tests showed that she fractured three ribs on her left side and she was admitted for observation and treatment,” statement says.

We would imagine the ‘Left’ is about to start panicking.

Developing…

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This is how housing markets turn. Slowly, then all at once.

Seven years of Seattle home prices outpacing wage growth because of low rates; bidding wars replaced by sales at the asking price; days or weeks on the market turning into months; sellers reduce home prices; surging mortgage rates; buyers disappear, and wallah- a classic turning point in an auction, otherwise known as an unfair high that is now rippling through the real estate food chain in the Seattle area.

As a reminder, before we dive into the faltering real estate market in Seattle. Back in September, we outlined a significant clue about the overall health of America’s housing industry: Bank of Ameria called it: “The Peak In-Home Sales Has Been Reached; Housing No Longer A Tailwind.”

With that in mind, it comes as no surprise that inventory countywide soared 86% among single-family homes and 188% among condos in October compared to a year prior, according to newly published data by the Northwest Multiple Listing Service. It was the most massive year-over-year increase on record, dating back to the Dotcom bust, a rhythm that has some asking: Is the housing industry about to go bust?

Mike Rosenberg, a Seattle Times real estate reporter, has been documenting the rise and fall of the real estate market on the West Coast.

Rosenberg said the median home price plummeted to $750,000, down $25,000 in one month and down $80,000 from all-time highs in spring.

He warned, “that is not a normal seasonal drop — prices in the city actually went up during those time frames last year.”

Compared to 2017, prices inched up about 2%. He said interest rates had moved higher in that span have increased monthly mortgage costs.

On the Eastside, the median home sold for $890,000, unchanged from the previous month, but down $87,000 from the all-time high in late summer. On a year-over-year basis, prices were still up 5.3%.

Rosenberg notes that prices dipped on a month-over-month basis in South King County but surged at the northern end of the county. He said inventory is flooding the market at the same time as buyer demand evaporates.

As we highlighted in the BofA report, sellers across the country are unloading properties into a weakening market will trigger downward momentum in prices.

Back to Seattle, that is precisely what is happening, as sellers have reacted by cutting asks faster than any other metro area in the country. To make matters worse, buyers are now negotiating prices down even further, as the average home is selling for below list price for the first time in four years, said Rosenberg.

Rising interest rates, declining demand, and flat-lining rents have been the main drivers of failing homebuyer demand in the second half of 2018.

Into the fall months, brokers told Rosenberg that buyers are now pausing as they wait for the storm to blow over. 

Ken Graff, a broker with Coldwell Banker Bain in Seattle, listed a townhouse in Magnolia on the market in April, “right before the apparent peak of the market,” and had 11 bidders who ferociously fought for the home, with a winning bid for $800,000. In September, he listed an identical townhome in the same neighborhood, it stood on the market for three weeks before selling for $725,000.

“Buyers are still having to pay a premium for Seattle-area properties, but it lacks the frenzy we’ve seen in the last few years,” Graff said.

“People can be a little more measured now, which is a good thing.”

Among other regions where home prices have dropped in October on a year-over-year basis: West Bellevue, Southeast Seattle, Burien-Normandy Park, and the Skyway area. On the other end, prices rose more than 10% from a year ago in Jovita-West Hill Auburn, Auburn, Kent, Renton-Benson Hill, Mercer Island, Kirkland-Bridle Trails and Juanita-Woodinville.

Elsewhere, the rest of the Puget Sound region also saw expanding inventory, including a 65% increase in Snohomish County.

The slowdown in Seattle housing shows little signs of abating as the Federal Reserve is expected to hold rates on Thursday before a hike in December. At their most recent meeting in late September, Fed officials communicated a plan for three more hikes in 2019. With one more rate hike forecasted in 2018 and three more in 2019, it seems that Seattle and much of the country’s real estate market could be at a significant turning point into the 2020 presidential elections. Let us hope real estate prices do not fall even further, as many homebuyers could vote with their home prices.

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Peter Schiff doesn’t mince words when he declared the precarious state the United States economy has found itself in. As SHTFplan.com’s Mac Slavo notes, Schiff says “the truth is we don’t have a booming economy,” and he’s not the only one who has noticed.

October was the worst month for global equities in more than six years. Globally, stock markets lost 7.5%, their worst month since May 2012. Even with the late rally, it was the biggest monthly decline in the Nasdaq since 2008.

“All of the bulls were out in force on the financial networks claiming that the correction is over. Everybody was confident that the lows are in, that the big back-to-back rally is proof and you better buy now, otherwise you’re going to miss the rally, and this is the typical correction and now it has run its course. And you know what? If this really was the end of the correction, most likely there wouldn’t be so many people that were so confident that it’s over. You’d have a lot more fear, especially on Halloween. The fact that there is no fear, to me, shows that it’s more likely that this is not the end of the correction, but the beginning of the bear market and that this rally is a correction.” –Peter Schiff via Seeking Alpha

Schiff is well-known for predicting the 2008 financial crisis, but that becomes slightly more real when hearing him say that the job market if a gigantic bubble. Schiff says that jobs are just one more bubble that’s about to burst.

Two hundred thousand jobs a month in an economy the size of ours, especially given how few people, or what a large percentage of the workforce is not working, we should be creating a lot more than 200,000 jobs per month. But we’re not.”

Even though wages are rising for people that have jobs, the cost of living is rising faster. But the cost of servicing their debt is rising even faster than that.”

As far as the job growth goes, the mainstream keeps pointing to it as a sign of a booming economy. But as Peter pointed out, we’re borrowing a tremendous amount of money to get this jobs growth.

Clearly, if we’re running record budget deficits, and record trade deficits, and everybody is levered up, you know, spending all of that borrowed money creates some jobs. But those jobs are not sustainable because the debt is not sustainable. The consumption based on debt is not sustainable.”

Increasing prices is a direct result of a decade of Federal Reserve easy money policy, Schiff accurately says. Over the last 10 years, the Fed has printed trillions of dollars out of thin air.

The point is we’re running record trade deficits. We’re running huge government budget deficits. The GOP cut income taxes. We’re giving everybody money to spend, so people are spending.

And in the short-run, yes, you can goose up the economy and you can create some unsustainable jobs. But just because we have these jobs today doesn’t mean these jobs are going to be here tomorrow.”

And remember, Schiff concludes: “that every boom has been followed by a bust.”

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JPMorgan’s Marko Kolanovic and Nomura’s Charlie McElligott were not the only one who were calling for a bounce near the October lows: so was, correctly, Dennis Gartman. Which begs the question: has the “Gartman sentiment indicator” finally turned? Perhaps: it is too early to know right now. However, it is notable that unlike Kolanovic, who is calling for continued market upside into year end, Gartman is now the contrarian voice and urges readers of the Gartman letter to start offloading shares and short the market, to wit:

we are “officially” going to recommend short sales of equities on this rally, something we’ve obviously refrained from doing thus far and something we have been correct in avoiding to date… we do not make this recommendation lightly, but we are making it nonetheless. It is time to sell… finally… patience having been rewarded.

Below we excerpt from Gartman’s latest letter on why his sentiment has shifted back to bearish:

[B]efore we all become far too enthralled by the strength…and we have to admit that the rally in the US markets was indeed enthralling… let’s do remember that for the year-to-date, even after the eight session rally we’ve seen, stocks as measured by our Index are still down… and are down rather materially.

Now, we shall grant that the “internals” yesterday were positive; indeed they were very so. On the aggregated NYSE and NASDAQ markets, 4,439 stocks rose while only 1,663 stocks fell, or 2.66 stocks rose for every one that fell. That is reasonably impressive. Too, the volume on the upside was far higher than was the volume on the downside for on the aggregated exchanges 4.837 billion shares traded higher while a scant 1.688 billion traded lower, for a ratio of 2.86:1 to the upside. Again, this was and is impressive, but even these ratios lag far behind the much more severe ratios in the bearish direction that evolved two and three weeks ago as share prices were falling.

This then brings us yet again to a discussion of “The Box” marking the 50-62% retracements which we believe are common in bear markets. Having made its last interim inter-day high of 2941 on the 21st of September and having fallen to its interim, inter-day low of 2603 on the 29th of October, the S&P’s “Box” marking the 50-62% retracement zone has been bounded by 2772 on the low side and by 2812 on the high side. Thus, the market has only now made its way into “The Box” and It has taken perhaps the most exuberant rally of the past several years to have done so.

And the punchline:

All of this brings us to this final point: after a week and one half of what we consider to be a marked, sharp, violent bear market rally we are going on the record as stating in the most certain of terms that those who are long of equities must… absolutely must… reduce their exposure materially by selling into this strength. Secondly, we are “officially” going to recommend short sales of equities on this rally, something we’ve obviously refrained from doing thus far and something we have been correct in avoiding to date. Thirdly, we do not make this recommendation lightly, but we are making it nonetheless. It is time to sell… finally… patience having been rewarded. At the same time, we are not prepared to risk more than 1-2% on this initial test of the short side for if we’ve learned anything at all in our nearly four- and one-half decades of being in the markets it is that risking more than that sum is a loser’s game and we chose never to play upon that larger, more extreme field.

So who will be right: Kolanovic, and the balance of the newly hatched bulls who now see gridlock in Congress as bullish, or Gartman? We look forward to the answer.

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