International Forecaster Weekly

A newsletter for economic news, global trends, politics, money, and investment. Published on Wednesdays and Saturdays for subscribers. Get a free sample of our full issue, or Subscribe today.

FED TIGHTENING PUSHING HOME SALES DOWN - Is Housing Headed for (or In) a Recession?

Guest Writer, October 5 2022

Pending home sales dropped for the 3rd straight month in August and the 7th drop of 2022.

It’s another sign that the Fed’s campaign to rein in the effects of high inflation appear to be sending a critical industry into recession.

According to the National Association of Realtors, 3 out of the 4 major regions across the country experienced month-over-month decreases in sales (the West saw a minor gain). All 4 regions saw double-digit declines.

The NAR’s Pending Home Sales Index, a forward-looking indicator of home sales based on contract signings, fell 2.0% to 88.4 in August. Year-over-year, pending transactions dwindled by 24.2%. 

An index of 100 is equal to the average level of contract activity during 2001, which was the first year to be examined. 

The PHSI is a leading indicator for the housing sector, based on pending sales of existing homes. 

A sale is pending when a contract has been signed, but the transaction has not closed (the sale usually is finalized within one or two months of signing).

According to NAR, pending contracts are considered good early indicators of upcoming sales closings. 

Variations in the length of that process – from pending contract to closed sale – are caused by difficulties with buyers getting a mortgage, home inspection issues, or appraisal issues.

The index is based on a sample that covers about 40% of multiple listing service data each month. 

In developing the model for the index over 20 years ago, it was shown that the level of monthly sales-contract activity matches the level of closed existing-home sales in the following two months.

Coincidentally, the volume of existing-home sales in 2001 fell in the range of 5.0-5.5 million, which is considered normal for the nation’s current population.

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US-Dominated Western Decline

Stephen Lendman, September 21 2022

China, Russia, India, Iran and other independent nations are rising in prominence on the world stage — while decadent US/Western ones are declining.

Their imperial arrogance has been hastening it for years, their unipolar moment fading in plain sight, multilateralism replacing it. See below.

What’s going on has been most apparent since the 9/11 mother of all state-sponsored false flags to that time.

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September 15 – 16 Shanghai Cooperation Organization (SCO) Summit

Stephen Lendman, September 17 2022

Leaders of 15 nations are attending this month’s SCO summit in Samarkand, Uzbekistan — including from China, India, Kazakhstan, Kyrgyzstan, Pakistan, Russia, Tajikistan and Uzbekistan, its 8 member-states.

At this year’s summit, Iran signed a memorandum to become its 9th member before next year’s SCO gathering in India.

Observer nation Belarus also began the process for full membership.

Egypt, Qatar and Saudi Arabia are expected to be formally introduced as dialogue partners ahead of full membership at a later time.

And Turkey’s position as a dialogue partner may be elevated to observer status — while Armenia, Azerbaijan, Afghanistan, Mongolia, Cambodia, Nepal, Bahrain, Kuwait, the UAE, Myanmar, and the Maldives are expected to begin process for becoming SCO member-states.

The SCO is the world’s largest regional organization in terms of geographic and population size.

Its member-states comprise around 60% of Eurasia — with 40% of world population and over 30% of global GDP.

As new member states are added to the organization, so will its size in land mass, population, GDP and global prominence.

Established in 2001 as an intra-governmental forum to foster mutual trust and economic development, the SCO also focuses on security-related issues — notably because of hegemon USA-led NATO’s rage to dominate the world community of nations by brute force if lesser tactics fall short.

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Guest Writer, September 14 2022

There's an encouraging sign that Americans view painfully high inflation as a temporary phenomenon, according to Courtenay Brown and Neil Irwin.

It comes in the form of another sharp drop last month in how steep consumers expect inflation to be in the upcoming years, as shown in the New York Fed's latest Survey of Consumer Expectations.

Expectations for the level of inflation over the next year fell by about half a percentage point in August – a historic monthly decline in the survey's nine-year history and second only to July's record-breaking drop.

Consumers' expectations for year-ahead price increases for gasoline also saw another sharp drop. Now, consumers expect gas prices to be roughly the same a year from now.

The Fed's huge fear is that consumer expectations for steep inflation will become a mainstay of the economy, which could force them to act in ways that would help inflation spiral upward. 

For what it's worth, that worst-case scenario doesn't appear to be materializing.

Respondents also aren't nudging up expectations for higher wages in the future. For the eighth straight month, earnings growth expectations held at 3%.

Even as inflation expectations move in the right direction, the survey shows consumers expect inflation to be much higher than the Fed's 2% target in the years to come.

Economists expect that the CPI – out tomorrow – will show that prices fell by -0.1% in August.

Core inflation – which strips out more volatile food and energy prices – is expected to have risen by 0.3%, matching July’s pace.

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ARE STOCK AND BOND MARKETS IN MIDST OF A CRASH? - “Big Short” Big Shot Thinks One of Them Is

Guest Writer, September 10 2022

“Big Short” big shot Michael Burry is repeating his warning that the U.S. stock market is in the midst of a major crash.

Burry, who’s famous mainly for his bet against subprime mortgages during the Great Recession, is equating current market conditions to the crashes in 2008 and 2000. 

Burry tweeted yesterday, “Crypto crash. Check. Meme crash. Check. SPAC crash. Check. Inflation. Check. 2000. Check. 2008. Check. 2022. Check.”

The Scion Capital Management chief’s latest pronouncement comes during a period of prolonged pain for especially paper market investors. 

The S&P 500 is down about 18% since January 1st (it hit -24% in mid-June), while the Dow Jones Industrial Average has plummeted about 15% (its 2022 low is -19.8%).

And the techy Nasdaq has fallen about 9% (it’s been as low as -35%) over the same period – all at or into bear territory. 

Popular “meme stocks” have struggled during this virtually all-encompassing downturn. 

Bed Bath & Beyond shares are down more than 51%, AMC shares have plunged nearly 70% and GameStop shares have fallen about 37% this year.

Burry has also called out weakness in SPACS – special purpose acquisition companies – which boomed during the stock market’s surge after its plunge in March 2020 but have cooled considerably over the last year. 

Meanwhile, bitcoin is down more than 60% this year and has dived below $19,000.

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Guest Writer, September 3 2022

One of the economy’s many enigmas in 2022 has been “blockbuster jobs growth during a time of very low unemployment vs. complaints of a labor shortage,” according to Courtenay Brown and Neil Irwin.

They add that since earlier in the year, it’s seemed like something has had to give. Now, new evidence suggests that "something" may have arrived.

ADP, the nation's largest payroll processor, rolled out its new measure of private-sector payrolls on Wednesday. 

In partnership with Stanford University’s Digital Economy Lab, the ADP Research Institute indicator infers data based on workers added or cut and paychecks sent by its own massive client base.

The other day, it showed private employers added 132,000 jobs in August — less than half from the 270,000 in July, and the lowest reading since January last year. 

The newly designed ADP report aims to capture underlying employment trends compared to its older version that essentially represented little more than a prediction of what the BLS would report two days later.

Well…today’s job report shows that 318,000 jobs were added to private payrolls last month, the lowest gain since April 2021 and well below July's 526,000, but just slightly below economists' estimate of 318,000.

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Guest Writer, August 31 2022

The duo’s historic cross-country expedition began in 1804, when President Thomas Jefferson directed Meriwether Lewis to explore lands west of the Mississippi included in the Louisiana Purchase. 

Lewis chose William Clark as his co-leader for the mission. Their treacherous adventure lasted over two years. 

Along the way, they faced hostile weather, unforgiving terrain, perilous waters, bodily injury, persistent hunger, disease and both friendly and unwelcoming Native Americans. 

Nevertheless, their roughly 8,000-mile trek was deemed a big success and provided new geographic, ecological and cultural information about previously unmapped areas of North America.

It was all about slow and steady.

Fast Forward 400 Years.......

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The Powell Doth Speak

Bob Rinear, August 27 2022

And oh what a week it’s been.  Let’s go back to last week for a minute. Last Tuesday the market capped off a blistering to week run, by having the S&P run “smack dab” into its 200 day moving average. Now a lot of people will tell you that the 50 and 200 day moving averages don’t carry as much weight as they used to, but they still carry some clout.

When the S&P hit that 200 day, that whole two week climb came to a screeching halt and we started heading down a bit, but nothing major. Until Friday. Friday the wheels fell off and we plunged. That carried into Monday of this week as the market puked for another big drop. Tuesday and Wednesday the market sort of “ran in place” trying to figure out if they had over reacted on the big sell down.

Meanwhile over in Wyoming at the Jackson Hole economic meeting, all the movers and shakers were talking about the economy, inflation, and interest rates. Despite several fed heads telling folks that they think rates must go higher, most of the talking heads began to tell folks that it seemed the Fed might only do a 50 basis point hike at its next meeting.  (Hogwash, you’ll see why)

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HOMEBUILDERS SEE A HOUSING RECESSION - Is America's Housing System Broken?

Guest Writer, August 24 2022

The American housing system is broken.

It’s bad for homebuyers and homebuilders; it’s even worse for renters. 

To put it bluntly, the U.S. desperately needs more high-quality rental housing. A lot of it.

These are far different times than those of our grandparents who came home from WWII to go to college on the GI Bill and find affordable single-family homes to raise their new families in.

Today, homeownership still works for many – but doesn't work for many others, especially those who aren’t ready to settle down in one place or who don’t have an ample nest egg to tie up all their savings in.

Builders See a Housing Recession

And builder sentiment – for single-family homes anyway – has fallen into negative territory this month, as builders and buyers alike struggle with higher costs.

The National Association of Home Builders Housing Market Index dropped 6 points to 49 this month, its 8th straight monthly decline. Anything above 50 is considered positive; 49 is not.

Notably, NAHB chief economist Robert Dietz says, “Tighter monetary policy from the Federal Reserve and persistently elevated construction costs have brought on a housing recession.” 

The builders index hasn’t seen negative numbers since the start of the pandemic. Before that, it hadn’t seen negative territory since June 2014.

Of the index’s three components, current sales conditions dropped 7 points to 57, sales expectations in the next six months fell 2 points to 47 and buyer traffic fell 5 points to 32.

The biggest hurdle for buyers – like many renters – right now is affordability. 

Home prices have been climbing since the start of the pandemic, and the average rate on the 30-year fixed mortgage, which had hit historic lows in early 2020, is almost double what it was at the start of this year. 

Yes, home price growth has cooled somewhat in recent weeks, while mortgage rates have come down from their 6%ish highs.

But Deitz believes, “The total volume of single-family starts will post a decline in 2022, the first such decrease since 2011. 

The eternal optimist adds, however, that peaking or falling inflation and stabilizing long-term interest rates “will provide some stability for the demand-side of the market in the coming months.”

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ANOTHER DAY, ANOTHER DATA DUMP - What Do the Jobless Claims Numbers Mean?

Guest Writer, August 20 2022

Another day, another drama, another slew of confusing data flowing out of government agencies.

The U.S. economy has created over 3 million jobs so far this year.

The number of people working as of July exceeded the total seen in February 2020, just before the economy dipped into recession, at least according to the National Bureau of Economic Research.

But it looks like the hiring binge could be winding down. In fact, many companies are now planning to cut back, largely because of the Fed’s rate hiking campaign and Quantitative Tightening to rein-in high inflation.

A new PwC survey shows that 50% of companies are planning to reduce their overall headcount. 

Additionally, 46% of companies said they’re ending or reducing signing bonuses, while 44% are rescinding offers (my daughter was a recent victim).

            Myles Udland believes that reducing overall headcount doesn't mean all of the respondents to PwC's survey are planning layoffs but indicates plans similar to what’s been going in tech.

As the report says: "Respondents are also taking proactive steps to streamline the workforce and establish the appropriate mix of worker skills for the future.”

That should come as no surprise. After a fury of hiring and a tight labor market over the past two years, executives see the distinction between having people and having people with the right skills."

Or, as Steven Covey once put it, having the right people in the right seats on the bus.

Since the labor market bottomed in April 2020, more than 22 million jobs have been added – or in many cases, added back – to the economy.

Fed Chair Jerome Powell told reporters last month, the U.S. labor market is "very hot." And those comments came before the government’s July jobs report showed 528,000 jobs were created last month.

This robust rebound, however, has been far from evenly spread across industries.

The nonpartisan Committee for a Responsible Federal Budget reports that overall leisure & hospitality employment is still down over 1 million jobs from February 2020.

At the same time, industries like "professional & business services" – which covers a host of white collar, Zoom-based, remote jobs – are up almost a million jobs (986,000) from pre-pandemic levels.

Udland says this uneven industry-level recovery “is why it sometimes feels like ‘everyone’ has gotten a new job in the last year while no restaurant…is fully staffed these days.”

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Guest Writer, August 17 2022

In late June, I wrote in how crack spreads would “see more pressure as the Biden administration does everything in its power to push gas prices lower before November’s mid-term elections.”

Crack spreads measure the difference between the cost of crude oil and the prices of refined products like gasoline — and are a key contributor to both profits at oil refineries and also prices at the pump.

The spreads – aka oil refiners’ profits — have soared this year as gasoline demand outstrips supply.

While surging profit margins for the makers of gasoline have opened the industry up to charges of price gouging, industry officials claim they’re producing as much gas as they can these days.

Industry capacity utilization was running at 94% as the summer began – the highest since 2018 when it hit 97%.

At the same time, a Department of Energy report also showed that overall refining capacity has fallen in the last two years. In fact, it’s now back down to where it was in 2014, meaning that supply would be stifled even if refineries were to run at 100%.

So, I wrote, with little chance of bringing new sources of gasoline online anytime soon, “the administration's best chance to lower prices at the pump in the near term will have to come from leaning on OPEC+ to drill more oil or on refiners to accept smaller profit margins.”

That, I predicted, “will become a growing source of agita for investors in oil companies – and other industries.”  Seems I was a tad overconfident.

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Things to Explore

Bob Rinear, August 13 2022

The Commercial/Selling a Put

            I got an email the other day from a gent who was watching TV, and a commercial came on. In that "financial" based commercial, there was a conversation between a client and what appears to be either his broker, or advisor. In the flow of conversation, the advisor says to the client, "well we might consider selling a put..."  to which the client says something like "that's an interesting idea."

            So I got this email, and Joe R. asks, "Bob, what's up with selling a put and why is that an interesting idea?" I thought maybe others might be interested in the answer, so I told him I'd address it to the subscription base.

            If you don't know how options work, then this is going to sound like goblety -gook. But even if you do know about buying calls and puts, "selling" a put is in a different category.  You'll need to pay attention because the differences are many. 

The following is from an options tutorial I wrote years ago, and sometimes parts of it come in pretty handy.  This is one of those times, because later in the tutorial you're going to see why in that commercial the client thought that selling a put was an "interesting" idea. 

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Guest Writer, August 10 2022

Americans expect inflation to drop precipitously over the next three years, according to the New York Fed. 

And Neil Irwin says “that's great news for anyone who doesn't want current prices to become the new normal.”

The NY Fed’s July Survey of Consumer Expectations, released today, shows marked drops in how households expect inflation to be across a variety of time horizons.

History shows that the higher we expect inflation to be, the more likely it becomes a self-fulfilling prophecy as businesses feel more comfortable raising prices and workers demand steeper wages.

In that sense, Irwin says falling inflation expectations “are a welcome sign that the high inflation of the last year is not causing a long-lasting shift in Americans' psychology around money.”

But inflation expectations in the July survey remain far above the levels that we saw in the years before the pandemic and are above the 2% inflation rate the Fed target.

In fact, consumers expect inflation to be 6.2% over the next year. That’s down from 6.8% in June and is the steepest one-month drop since the survey began nine years ago (CPI rose an annual 9.1% in June).

The potential good news lies in expectations over the next three years having fallen to 3.2% from 3.6%, and 5-year expectations to 2.3% from 2.8%

Irwin reports that the drop was most evident among survey respondents making less than $50,000.

He surmises that’s a possible reflection of those consumers, who were most affected by soaring oil and gasoline prices, seeing relief at gas pumps last month.

Fed chair Jerome Powell mentioned the NY Fed's results as a reason to continue aggressive rate increases at the Federal Open Market Committee’s June policy meeting. 

Thus, Irwin believes the falling expectations “will likely give comfort to the central bank.”

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Guest Writer, August 6 2022

Courtenay Brown and Neil Irwin have been spot-on with their analysis of the economy recently. 

Yesterday, they wrote that the “strong labor market continues to be the economy's bright spot.” 

They say it could stay robust even as the Fed sends the economy into a slowdown if, that is, “businesses hoard workers to avoid repeating past mistakes.”

Employers, particularly in industries that have struggled with labor shortages, may be more reluctant to lay people off, even as rising interest rates and other factors slow consumer and business demand.

Brown and Irwin believe if employers maintain their payrolls, it would make the coming “economic slowdown milder and less painful for workers than recent recessions.”

They point to recent company earnings calls, where some employers have reported hesitancy to reduce their headcounts, even as growth deteriorates.

Government quarterly reports show that GDP has shrunk a cumulative 2.5% in the first half of 2022.

Chris Gorman, CEO of bank holding firm KeyCorp, said, "It's been challenging, frankly, to be out in the hiring market in this ride-up in the last couple of years." 

That's why he says his company will staff up more in some areas "in sort of a flat or down" environment than they have in the past.

In June, only 1.3 million workers were laid off, fired or otherwise released from their jobs, according to the Labor Department. 

That’s down 28% from the average of 1.8 million in 2019 (i.e., before the pandemic) – suggesting that companies are indeed more reluctant now than they were then. 

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Guest Writer, August 3 2022

Debate is flourishing on Wall Street and at Main Street kitchen tables over the Federal Reserve's fight to lower inflation and how high unemployment will jump as a result.

            On the one hand, Fed policymakers believe its rate hikes will eventually drive down strong demand in the economy without causing too much pain in the job market – in other words, a soft landing.

On the other hand, influential economists like Larry Summers say the Fed's ideal outcome hasn't materialized before, and there's no reason to think it will now.

The fight is being debated in various academic papers, but the real stakes for workers and their families are high. 

Courtenay Brown and Neil Irwin write today that the issue “is not whether unemployment rises, but by how much as the Fed tightens.”

They believe the crux of the debate is the inverse relationship between unfilled job openings and the unemployment rate. 

Other things being equal, as job vacancies rise, unemployment falls and vice versa.

As of May, job openings trended lower but remained near their highest levels ever at 11.3 million. 

Plus, the headline unemployment rate is holding near a half-century low (remember, the headline rate is significantly underreported).

The result is an unprecedented 1.9 job openings for each unemployed worker.

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