"If you want others to be happy, practice compassion. If you want to be happy, practice compassion."
- Dalai Lama
I’ve been pretty patient. Like years patient.
Maybe it’s the start of the keto diet and the associated physiological transition/adjustment period.
Perhaps it’s the season change and the subconscious lamentation of another summer lost. Or maybe it’s just an acute example of a last, critical sand grain atop a complex system catalyzing a terminal phase transition.
In any case, if I’m the ‘beneficiary” of another “omni-channel” or “white-space” or “ecosystem” reference – (still) delivered like it’s some insightful and original phraseology innovation - my brain may very well implode in on itself in a kind of cascading platitude driven cerebral supernova.
Maybe it’s just me.
Back to the Global Macro Grind ….
Caring is generally considered a character trait, meant to describe a kind of fixed empathy… both enduring and capable of cultivating a psycho-emotional environment supportive of sustainable, organic growth to those on which it is bestowed.
The CARES Act, however, has proved an ephemeral beast befitting of a political-scape mired in acrimony and characterized by serial short-termism devoid of secular considerations or ambitions.
Indeed, the sell-by date on the latest act of congressional ‘Caring’ increasingly appears to be right now:
- PPP funding is exhausted, enhanced U.I. benefits have been dramatically reduced and are nearing full exhaustion, forbearance programs face a rolling expiry and income gains associated with fading labor market improvement are not matching the pace at which support funds are receding.
- Debit/Credit card spending by the unemployed has totally faded the stimulus/enhanced U.I. spike and is flirting with going negative across select categories.
- Similarly, Retail Sales have marched progressively lower on a sequential basis with Core Retail Sales printing negative in August.
- The transition from temporary to permanent unemployment has begun and is set to accelerate in the coming months.
- The ranks of small businesses now transitioning to permanent closure continues to rise.
- Consumer Income Expectations (University of Michigan) are now making lower lows.
Looking ahead to Jobless Claims:
As we’ve highlighted, it’s likely that Initial & Continuing Jobless claims continue their trudging march lower … but the “How” of the decline will become more meaningful over the next month+.
On the supply side we are slowly running out of large numbers of people to fire while, on the back end, those eligible for U.I. benefits (which typically last 26 weeks) will decline as the huge bolus of individuals currently unemployed for 15-26 weeks push past eligibility expiration.
If that sort of double-sided squeeze is the predominate driver of falling job loss numbers, it obviously carries different implications for aggregate consumption capacity than an improvement driven predominately by large-scale hiring.
Meanwhile, in perfectly counter-intuitive juxtaposition to the dynamics above, the peri-pandemic housing juggernaut remains in full effect.
Yesterday and this morning offered some notable incrementals:
Housing | Purchase Applications: This morning’s weekly Mortgage Application data suggests the Purchase Party remains in full Palooza formation.
Purchase Apps (remember, you only really care about the Purchase subcomponent of the Headline data) rose +3.4% W/W while accelerating to +25% Y/Y and marking a fresh cycle high of 327 at the Index level.
All-time low rates, lower forever rate expectations, all-time tight existing market supply conditions, prospects for a durable deurbanization trend, percolating prospects around climate-related migration and a rejuvenated grab for inflation hedge assets amidst discrete monetary-fiscal cooperation remain the defining factor cocktail underpinning housing.
Housing | Mortgage Credit Availability: A notable aspect of the sustained spike in purchase volume is that its occurring alongside a discrete tightening in mortgage credit availability – mortgage credit has tightened significantly since April but has not manifested as a growing spread between Purchase Applications and closed transaction volume (i.e. a higher application rejection rate).
Ostensibly, this underscores the broader inequality dynamics that have pervaded pandemic related socio-economics (job loss concentrated among those least able to shoulder it, recovery/income gains disproportionately accruing to owners of capital and financial assets). Effectively, everyone who’s qualified is buying a house, while everyone who isn’t wishes they could … a dynamic that will only serve to further propagate the inequality cycle.
Housing | This Is A (Supply) Knife … With existing home sales rising to a 164-month high and unit inventory down -0.67% M/M (-18.6% Y/Y), months-supply breached 3-months to the downside for the first time ever in August.
While the beginning of the typical spring selling season was negatively impacted, the COVID catchup and the subsequent organic strength have shifted and extended the selling season as the late summer slowdown precipitated by the last flurry of get-settled-before-back-to-school was rendered inconsequential, or simply subsumed by work from home/anywhere, school from home/anywhere and the larger affordability and deurbanization catalysts.
In addition to the inventory data, the other notable was price, which continues to act as the pressure release valve for the supply-demand imbalance.
Indeed, after moving above $300K for the first time ever, median prices accelerated +266bps to +11.7% Y/Y in the latest month, marking the fastest pace of growth since 4q13.
In short, ‘3 to 4 months-supply isn’t a knife, this is a knife ” … is the primary takeaway as supply tightness further intensified to historic levels (in addition to a convenient excuse to cue up some Hogan - HERE).
The corollary is that further acceleration in demand growth amidst ongoing, lower all-time lows in inventory becomes increasingly constrained as volume pushes further north towards cycle and multi-decade highs.
Again, with Purchase App strength promising continued solidity in reported contract signing and closed transaction volume over the coming months, we’re probably not quite breaching a critical threshold on that imbalance yet, but it's getting close absent a more fervent move in the direction of supply renormalization
And lastly as an update on how we’re tactically risk managing the Quad 3/Quad 4 regime uncertainty, Keith offered the following with respect to the VIX and the $USD – both of which (and particularly the latter) continue to sit at the nexus of global macro correlations.
- VIX (breaking down, again)– slicing through @Hedgeye TREND support of 26.20 this AM gives SPY the reversal back to a Bullish @Hedgeye TREND signal alongside the one we gave you in AAPL 2 days ago. #NazVol is taking a rest after signaling lower-highs 2-days ago as well; looks like consensus capitulated and took down gross exposure at this weeks lows
- USD (shorting it here) – saw some Macro Tourists talking about their “200-day” concerns on Dollar Up this AM, so that was probably it in terms of narratives and immediate-term upside in USD vs. Euros, Pounds, Swiss Francs, etc. Plenty to buy in both Commodity space (including Bitcoin) and Equities on that - #Quad3 ain’t over, till its over, eh
Immediate-term @Hedgeye Risk Range with TREND signal in brackets:
UST 10yr Yield 0.63-0.70% (bearish)
SPX 3 (bullish)
RUT 1 (bearish)
NASDAQ 10,595-11,201 (neutral)
Tech (XLK) 110.76-117.01 (neutral)
REITS (XLRE) 34.20-37.37 (bullish)
Utilities (XLU) 57.38-60.12 (bullish)
Financials (XLF) 23.60-24.84 (bearish)
Shanghai Comp 3 (bullish)
Nikkei 23042-23650 (bullish)
VIX 24.23-30.22 (bullish)
USD 92.69-94.24 (bearish)
Oil (WTI) 36.18-42.04 (neutral)
Gold 1 (bullish)
Best of luck out there today,
Christian B. Drake
Macro Analyst
