APRIL 19, 2023 – Let’s get the trivia out of the way. India has surpassed China in population. I didn’t know it was even close. Sort of reminds me of the day about 30 years ago when WalMart surpassed Sears and KMart (you youngsters are asking what is Sears and KMart 🙂 ) on the same day to become the #1 retailer. As for the housing market…
Freddie Mac said the 30-year mortgage rate declined for the 5th straight week – now at 6.27%. It is like pulling teeth to get it below 6%. But, regardless, it has been lower ever since the day I called the high last year.
According to the American Enterprise Institute (AEI), home prices increased for the 3rd straight month. This follows monthly declines from July to December 2022. As I have noted many times, the market predicts the future 6 months out. As an aside, I heard an analyst today say the market does not predict the future. It is people like him that I need so I can have someone on the other side of my trades:)
So, in regard to housing, the market peaked in December 2021. Thus, it said the housing market should peak in June 2022. If you read my posts last June, you will see I was screaming that a top was occurring by the very minute.
After a 40% decline, the same indicator bottomed in June 2022. Thus, predicting a bottom for housing in December 2022. Is it coincidence that the AEI home price index bottomed in December and has gone up for 3 straight months? Sure, let’s call it coincidence:) As an aside, the same indicator is up 35% from its low.
This is a great lesson on how the market takes advantage of the public. At the end of 2021, the smart money cashed out and enjoyed a 40% decline in housing stock prices. All along, the public was hearing every day how strong the housing market was. Then, for the 2nd half of last year while the public was hearing how the housing market was crumbling due to rising interest rates, the smart money made 35% on housing stocks rising. It is such an easy game to play. As long as the public always follows the news…and it will.
So, remember, this Fall the news will change from being negative on housing to being positive. Suddenly, the public will have found a way to sell their houses that had a 4% mortgage rate and buy a house at a 7% mortgage rate. Remember, the market predicted that news today – 6 months before you hear it from the pundits. Also, this is not the first time in history that people owned homes with mortgages at x% and years later had to sell and buy a home at a mortgage rate of X+3%. People adjust. Just buy a lower price home! Everyone acts like this is the end of the world having mortgage rates 3% higher. It isn’t. The sun continues to come up in the East every day.
As I mentioned last year, the decline in housing prices would be less than expected because of a lack of inventory. According to Redfin, the number of listings has declined at a double-digit rate for 8 straight months! Geez, are there any homes for sale anywhere! According to the NAHB, 1/3 of homes for sale are new construction. The norm is 10%. Do you think the market knew that would be the case when they started buying housing stocks last June? Yes, of course.
I said last year the public and pundits would be baffled by home prices not declining much, if at all, while the average mortgage payment was up 50%. Logically, home prices need to decline 33% to keep the mortgage payment the same. That has not and will not happen.
All of the above is explained by Socionomics (not the same as socioeconomics). Thankfully, I started following Robert Prechter 43 years ago and watched him develop the Theory of Socionomics. No matter how much is published on the subject, the public just will never learn to do the opposite of what they have been doing for thousands of years. I am sure you can find Mr. Prechter’s books on the subject on Amazon, eBay, etc. If you want to change the way you look at everything, look into this subject.
Lastly, I want to mention an interesting conflict in indicators that will play out this year with one side or the other being wrong. The stock market bottomed last October (so 6 months later is right now and I saw a survey that said the public is the most pessimistic about the future that they have ever been….of course, if you follow the stock market you knew that would be the case 6 months in advance!). It is up about 20% from its lows. It continues to say no recession this year and, in fact, the economy should improve. Now, the opposite is occurring with the tightening credit market. Virtually ever recession has been preceded by banks tightening credit. This indicator is screaming for a 100% certain recession in the second half of this year. So, either the smart money is wrong or this indicator will fail this time. Something has to give. I bet on socionomics and the smart money (aka stock market). Which side are you betting on?
Til next time…
Shalom,
The Mann
Tag Archives: Prechter
THE MARKET ENTERS THE PREDICTED RANGE
UPDATE MARCH 27 (EVENING) – The DOW peaked at 22,595 on Thursday. That is within 100 points of my target. I’ll be surprised if my third forecast target in a row is this accurate. But, if so, I’ll take it.
I will revisit price targets for the upcoming low next week.
The way the waves are looking the following should occur: The US Dollar will rally to new highs short-term, Gold will fall below $1050-$1250 longer term, Silver will decline below $8 longer term. and stocks will fall 30% from current levels short-term. How all of that happens I have no idea. But, that is what I see happening. I never ask why or how.
The $2+ Trillion stimulus bill was signed today. And the DOW was down 915 points. The markets already have priced in all of the stimulus that will be thrown at the country ($6+ Trillion). They are looking at where we will be this Summer or Fall and they aren’t happy with what they see. I am guessing they are pricing in the virus coming back in the Fall and Winter.
Regarding Oil, I did get a reply from the experts at Elliott Wave International. My thoughts that the combination 120-year bull and bear market might well be coming to an end are on target. Obviously, it is rare to have such an opportunity occur in a our lifetime. There is an issue regarding the length of this bear market (timewise). I need to analyze the 120-year move in a bit more detail to see what I can figure out. I will keep you posted.
I have a gripe about healthcare providers complaining about going to work….about being on the front lines and subject to getting the virus. Seriously? Did you think you would take care of sick people and not encounter a contagion? Geez, too much complaining about having to work nowadays. Just do the job you chose as a career. Be proud that you are helping people. You have a chance to help others and change the course of history. Stop complaining.
Oh, I do hope GM cans their CEO. Trying to make a killing off of this crisis is obscene. Like him or not, Trump is great at not letting anyone screw over our country. I am glad he invoked the Protection act and I do hope GM doesn’t get a dime for the respirators they will make. To think we bailed them out last time around….and this is the thanks we get. I will never buy a GM product.
Til Monday evening…stay safe.
The Mann
UPDATE MARCH 25 (EVENING) – The DOW rallied to 22,020 today. It has satisfied getting to the range of a top for this counter trend rally. It then fell almost a 1,000 points in the final 5 minutes due to Bernie Sanders threatening to hold up the bailout legislation. It cannot be ruled out that the DOW could rally back above 22,020. But, once a target range is satisfied, I start concentrating on the next wave – which is down to 13,900 to 15,400.
For trivia, this was the best 2-day rally since the 1987 crash. And I think it was the first consecutive up days in a month.
Gold backed off its rally quickly. Oil is starting to get its legs back.
Hopefully, Friday evening the waves will be telling us more.
Regarding real estate, early info is saying that buyers are asking for a 5%+ reduction in price on existing contracts. That isn’t all buyers. And that isn’t much at all. Starter homes continue to sell well. National Tenant Lease properties are in demand as a flight to safety. Since these are really corporate bonds, and not real estate, this makes a bit of sense. Of course, the question is do these buyers know what kind of downgrade the corporate bond rating will get for the tenant in the property they are looking at? Or are these unsophisticated buyers just looking for anywhere to put their money?
Please share anything you are hearing regarding real estate prices, cap rates, closings falling thru, et al. Til Friday evening…
The Mann
UPDATE MARCH 24 (EVENING) – I was going to post this regardless of today’s outcome. But, worth noting today was the largest up day since the depths of 1933.
Most, if not all, analysts never state what could occur that would show their forecast to be wrong. Flat out, if the DOW rallies above 24,200 my interpretation of the wave theory will be wrong. Technically, it would just mean the waves were showing something else was happening. But, to me, I say I am wrong.
I did some analyzing today and thought this rally would terminate around 22,500. Bob Prechter’s firm put out their analysis this evening and said about 21,200-22,100 should be the top of the range. The main point is this rally absolutely cannot go above the late February low around 24,200.
Some additional analysis suggests that 15,300-15,400 is really looking good for the final bottom (i.e. for this first ‘A’ wave of a Bear Market….wherever this low occurs, it should be broken down the road after a significant rally occurs). But, a lower target of 13,900 showed up so I would have to update the ‘final’ bottom range to be 13,900-15,400.
So far, the 27,100 top forecast for Wave 2 of the decline was almost exactly on target. And the 18,200-18,400 range for a possible appears to be for Wave 3 of this decline. Both have been right on the money. I suppose my luck will run out soon:) Albeit, I usually do excellent in a major downturn, so we shall see.
22,500 for the top of Wave 4 and 13,900-15,400 for the bottom of Wave 5 of ‘a’ are up next.
I need to confirm with Mr. Prechter something I am observing regarding the Oil market. It is significant, so I hope to get his thoughts on the matter. Sam Zell said he bought some energy stocks. If what I see occurring in the Oil market, per the wave theory, is accurate, then we might have an opportunity like that of the stock market in April 1933. Will keep you posted on this one.
Oh, the $200 Gold rally in two days is due to people suddenly realizing they can’t buy the physical product anywhere. I use KITCO and they are all but sold out. However, the wave theory allows for this rally to still be part of the larger decline below $1056. No change of thought on that forecast because of these two days.
Stay at home. Be safe. Enjoy time with your family.
The Mann
MARCH 23 (EVENING) – A fairly calm day in comparison to the past few weeks. The Dow bottomed below 18,300 today. It thus, entered the 14,600-18,400 range I forecast when it was around 25,000.
My analysis of the waves is very much in sync with others. I would say there is a 25% chance of a significant bottom occurring between the 17,000’s and today’s low and a 75% chance of a bottom occurring in the 15,400 range. This latter figure has significant support as bottoms in 2015 and 2016 occurred around this figure. With both the waves and chart support suggesting 15,400 as the low, this figures gets greater weight at this time.
It is amazing to hear predictions of -30% to -50% for GDP and up to 30% unemployment. If these figures occur, we will have blown away The Great Depression and The War of Northern Aggression (aka the Civil War for those north of the Mason Dixon line).
TRIN is at 0.82 is incredibly far from signalling a bottom (1.60+).
VOO is at about -$2.5 Billion for last week. I would need to see -$10 to -$20 Billion to know the public has thrown in the towel. Or maybe several weeks of -$10 Billion at a minimum.
For those interested in Corporate Bonds, I was introduced to an indicator to watch. First, about 40% of Corporate Bonds graded BBB (lowest investment grade before becoming junk bonds) are expected to be downgraded to junk.   Keep that in mind regarding current ratings. Remember, rating agencies are almost always BEHIND the curve with their grades. They will finally lower their ratings once all of the decline has occurred. They get paid for such hindsight.
Back to bonds….as long as the ETFs are trading at a discount to their NAV (Net Asset Value), the market is saying prices aren’t low enough, yet. I will follow ticker symbol BND (Vanguard Total Bond Market Index Fund). It is currently trading at about a 3% discount.
Regarding Corporate Bonds, does anyone have a source that shows what is out there and what their prices are? Barron’s and the WSJ used to list all of them in their papers. But, they don’t do that any more:( If you know of a site that has this info, please share it with me. Thanks.
We shall see what the next two days bring and I will be back Wednesday evening with an update.
Stay safe.
The Mann