Air Coming Out Of Another Bubble, All Roads Lead To Pain

Sounds like air coming out of another bubble….

Housing weakness deepens nationally as pending home sales drop 4.7 percent in January, hitting the lowest point in nearly four years

  • The housing recovery appears to be making a U-turn as mortgage rates rise amid a critically low supply of homes for sale.
  • Pending home sales, which measure signed contracts, not closings, fell 4.7 percent in January compared with December, according to the National Association of Realtors.
  • The weakness was nationwide, and December’s reading was also revised lower.

Pending home sales fall to more than 3-year low from CNBC.
This????is where we’ve been, where we are, and where we’re going.
There were many points in time we could have felt the pain, but the day of reckoning has been delayed.
The blue arrow is where we are.

Buffett knows that the markets are severely overvalued. He is patient, calculated, and is waiting for the mean reversion so that his $116B will buy $232B worth of today’s stocks. He’s already survived four such reversions.

h/t @OccupyWisdom


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Debt Matters

My take: Consumer debt is a massive problem. There are people that don’t see it that way. I think that’s a mistake and I’ll outline my case here with some charts/thoughts and you are of course free to draw your own conclusions.
I don’t think it’s an accident that markets have been reacting negatively to yields spiking. And it’s also not an accident that home sales are dropping in the face of higher rates.
How sensitive to higher rates is the entire construct? Currently every spike in the 10 year invites selling during the day. Jerome Powell’s words led to yesterday’s 10 year spike above 2.9% and it flushed stocks.
Yesterday we also learned that 72% of earnings growth since 2012 was due to buybacks, or financial engineering in short:

“Volatility is an instrument of truth, and the more you deny the truth, the more the truth will find you through volatility.” Over the past decade, there has been no corporate instrument of mistruth more powerful than buybacks, an issue we have dissected in these pages for years. U.S. firms have spent roughly $4 trillion on buybacks since 2009, making corporations the biggest single source of demand for U.S. shares. According to Artemis’s calculations, buybacks have “accounted for +40% of the total earnings-per-share growth since 2009, and an astounding +72% of the earnings growth since 2012.”

That’s a big number and it reveals the extent of the mirage that has been propagated for the past few years. Consumers and the government are drowning in debt and the construct continues to be held up by low rates, hence the sensitivity.
And I think principally people understand this. After all it’s not often that a macro chart goes viral:

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