Martin North – Page 125 – Digital Finance Analytics (DFA) Blog

A Deeper Dive Into Rental Stress…

As requested following our recent mapping analysis of mortgage stress, here is a series of maps relating to rental stress – again measured in cash flow terms.

Overall more than 2 million households have fallen into rental stress, and they are concentrated in a range of specific suburbs.

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Will The Fed Put Put A Put At 40%?

Albert Edwards at Societe General has once again highlighted the risks in the markets, and that the coming bust will surely be devastating. At the end of 2021 he wrote about four surprises which will shake the markets.

US financial conditions have tightened considerably in recent weeks and severe cracks are beginning to be seen in the asset valuation ‘Ponzi scheme’ that the Fed et al have inflated over this last, and several previous, cycles. Like any other Ponzi scheme, it needs constant feeding with new money to keep the charade afloat. But having let the inflation genie out of the bottle, the Fed is now determined not to ease policy (yet) despite financial conditions tightening. Hence bond yields, unusually, are now rising in line with tightening financial conditions. But for how long?

At a decline of around 40% (close to 3,000 on the S&P), the soothing ‘brrrr’ of the QE printing presses will likely once again be heard. And that point might be closer than people think.

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Three Big Housing Nasties…

We look at recent commentary from New Zealand highlighting three forces which are combining to drive home prices lower. In fact, we argue they are three for the four horses of the apocalypse. As a result, expect prices for fall further and faster. And this is an objective lesson to Australia, who is about 6 months behind.

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The Whipsaw Market Weekly Update

The latest edition of our finance and property news digest with a distinctively Australian flavour.

In our weekly review, we reflect on a chaotic week in the markets, from stocks, to crypto, even as stocks rallied at the end of the week in financial markets thanks to Federal Reserve Chair Jerome Powell’s reassurance that bigger rate hikes would be off the table for now even after the hot inflation readings of the past few days. Separate comments from San Francisco Federal Reserve president Mary Daly also backed half-percentage point rate increases at each of the central bank’s next two meetings. There is a clue to why we are seeing so much craziness.

After sinking almost 20% from a record and flirting with a bear market, the S&P 500 saw a broad-based rally on Friday. It still posted a sixth straight week of declines — the longest losing streak since June 2011. The NASDAQ 100 outperformed amid a rally in giants like Apple Inc., Microsoft Corp. and Amazon.com Inc.

Meanwhile, Elon Musk caused chaos over his takeover offer for Twitter Inc., first claiming his bid was “temporarily on hold” and then maintaining he’s “still committed” to the deal — sending the social-media giant into a tailspin. Tesla Inc. jumped. Treasuries fell with the dollar.

Despite the strong gains on Friday, many traders aren’t yet convinced that equities have reached a bottom after a selloff that shaved $10 trillion from US stock values in 18 weeks. Instead, they say investors should still brace for volatility as the Fed’s ability to fight price pressures without causing a hard landing may depend on factors outside the central bank’s control. Frankly forecasting is a mess.

Back in January, stock strategists known for their enduring optimism expected the S&P 500 to add 5% in 2022.Bond strategists weren’t any more prescient. Interest rate strategists and economists were calling for 10-year Treasury rates to rise to 2% by June. Yields took out that level in early February and have touched 3.2% this month.

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The Coming Hyperinflation of Australian Property

The most important set of economic questions facing the Australian people is inflation, interest rates and mortgage/financial stress. The recent release of the Consumer Price Index by the Australian Bureau of Statistics at officially 5.1% and the subsequent raising of interest rates by the RBA is now the main conversation which many Australian families are having. With only one interest rate there is already a sea change in the sentiment in both the property market, shares and cryptocurrencies. Many Australians with significant debts are now quite nervous about what does the future hold. Analyst Martin North and Economist John Adams discuss…. Go to the Walk The World Universe at https://walktheworld.com.au/

The Persistence Of Inflation…

As discussed yesterday, the US inflation read was seen by the markets as important. A fall in the number would lead to markets potentially regaining their footing. Before the report, economists had been betting that annual inflation would dip below 7% in the third quarter of this year on expectations that supply chains will get back in order and inflation will dent demand.

And of course Joe Biden had come out before the number was released saying “I want every American to know that I am taking inflation very seriously and it’s my top domestic priority,” “The first cause of inflation is a once-in-a-century pandemic. Not only did it shut down our global economy, it threw supply chains and demand completely out of whack… And this year we have a second cause: Mr. Putin’s war in Ukraine.”

But Americans got little respite from inflation in April, as prices for a range of necessities and discretionary-spending categories continued to climb at some of the fastest-ever rates. The Labor Department said Wednesday its consumer price index slowed to 0.3% last month from 1.2% previously, exceeding forecasts for a slowdown to a 0.2% rise. Consumer prices in April year-on-year slowed to 8.3% from 8.5%.

Grocery prices were up 10.8% over April 2021, with meat rising 13.9% and eggs up 22.6%.

That S&P bear market debate is raging nonetheless, with some strategists and observers saying the S&P 500 is growling just like one should. Wall Street banks like Morgan Stanley have been saying the market is getting close to that point.

But should the S&P 500 officially enter the bear’s lair, Bank of America strategists, led by Michael Hartnett, have calculated just how long the pain could last. Looking at a history of 19 bear markets over the past 140 years, they found the average price decline was 37.3% and the average duration about 289 days.

While “past performance is no guide to future performance,” Hartnett and the team say the current bear market would end Oct. 19 of this year, with the S&P 500 at 3,000 and the NASDAQ Composite at 10,000.

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Pop Goes The NZ Home Price Weasel!

REINZ Released their data for APRIL, and as expected property prices and momentum are moderating, with a further slowdown in sales activity, more moderate price growth and, as properties stay on the market for longer.

Across New Zealand, the number of residential property sales decreased annually by 35.2% in April 2022, from 7,497 in April 2021 to 4,860. The sales count for New Zealand excluding Auckland, decreased 31.7% annually from 4,815 to 3,287.

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