Last night I watched the Bears lose to the Packers yet another time. Leading up to the game, logic said there was little chance the Bears would win in spite of winning their first game. However, there was still some hope because the Packers looked really poor in week 1. That hope was quickly dashed as the game was over by halftime. Even when there was a late effort to get back in, that hope was dashed too.

This feels like a week set up for dashed hope in the mkts as well. Logic says the mkt needs to move lower. The economic data is pointing in that direction. Equities are the only thing that are not at the June lows as rates, crypto and even commodities are back to those June levels. However, there is some hope. Positioning is very bearish after all. This could change on a dime if the news flow gets better. This hope looks set to be dashed this week with the events that will play out.

This week is chock full of housing data. I show in the top graph the NAHB number, building permits, new home sales & existing home sales. All are pointing lower, at some pre-Covid level. This could be normalization from the Covid boom, or it could be more than that. We will soon find out with all of this coming out today. Anecdotally, in the Chicago suburbs, I still see houses being built & houses selling. This is nothing like late 2020/early 2021 but it is far better than pre-Covid. Perhaps that means there is more downside or perhaps it means places where prices didn't go crazy are still okay.

The bottom chart shows the spread between the 30yr mortgage rate & the 10yr Treasury. It is more than 2 standard deviations wide, levels hit during Covid and the GFC. This will come lower. It is a sign that lenders are nervous & don't want to lend right now. It is a sign that velocity is low & credit creation is not happening. It is actually a sign of hope once we get through this period. We will also hear from the Fed this week. That has the possibility of dashing this hope tho.

If we look at a blend of the mortgage rate & the unemployment rate, as the decision to buy a house is a function of the monthly cost but also whether someone has a stable job, it does not look bad at all. That rate (not shown) peaked at 7% in the GFC & Covid. It is below the 5% average of the last 20 years now. That suggests housing could be okay. Another sign of hope going forward.

HOPE is also the acronym for housing ->orders -> profits -> employment, the direction money flows into and out of the economy. We have seen the first two weaken. The expectation is the third will weaken over the coming month. When will the last one weaken? Will this be another sign of dashed hope?

The mkt is moving lower because of dashed hope. Bears fans are upset this morning because of dashed hope. I think you can blame the bear mkt on Aaron Rodgers. Blaming him for problems works really well for me. Give it a try.

Stay Vigilant