The Week in Charts (10/1/23)

By Charlie Bilello

01 Oct 2023


Note: view the video of this post on YouTube here.

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This week’s post is sponsored by YCharts. Mention Charlie Bilello to receive a free trial and 20% off your subscription when you initially sign up for the service.

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The most important charts and themes in markets and investing

1) The Frozen Housing Market

Pending home sales in the US have moved down to their lowest level since April 2020, a month where much of US economy was shut down. The housing market is frozen.

What’s driving this?

The combination of skyrocketing mortgage rates and skyrocketing home prices, which has led to a collapse in affordability.

The 30-Year Mortgage Rate in the US has moved up to 7.31%, the highest level since December 2000. Only a few years ago this rate was at 2.65%, an all-time low.

US Home Prices hit a new all-time high in July, up 40% over the last 3 years.

Meanwhile, affordability is at record lows. The median American household would need to spend 43.8% of their income to afford the median priced home. That’s the highest percentage in history, worse than the peak of the last housing bubble.

2) 7 Years Gone

The Total US Bond Market ETF ($BND) now has a negative return over the last 7 years. This is the largest bond ETF with assets of $95 billion.

What happened?

Rising rates from extremely low levels.

The 10-Year Treasury bond yield moved up to 4.61% this week, its highest level since October 2007. This is nearly triple the yield from 7 years ago (1.56%).

US bonds are currently 15.6% below their peak from the summer of 2020.

At 38 months and counting, this by far the longest bond bear market in history.

3) Fed on Hold

The Fed’s preferred measure of inflation (Core PCE) moved down to 3.9% in August, lowest since May 2021. The Fed Funds Rate is now 1.5% above core PCE, the most restrictive monetary policy we’ve seen since November 2007.

With Core PCE expected to continue to decline, the Fed should be comfortable holding again when it meets in early November. That’s the market’s expectation as well, with an 82% probability as well, with an 82% probability of “no change” priced in.

4) Positive Signs for Inflation

The road back to a more normal inflationary environment is paved with a normalization in the money supply. And on that front, we continue to move in the right direction.

After a 40% increase in 2020-21, we’ve seen a 180 degree shift. The US Money Supply fell 3.7% over the last year, a record 9th consecutive month with a YoY decline.

And the biggest single contributor to CPI, Shelter, should continue to move lower as well.

Why?

Because US Rents are 1.2% lower than a year ago, the biggest YoY decline since December 2020.

5) Unaffordable Healthcare

The average US family health insurance premium has increased from $6,000 in 2000 to $21,000 in 2022. That’s a 249% increase, or 5.8% per year. That’s more than double the annual increase for overall US prices (CPI of 2.5% per year).

The biggest beneficiaries of this massive increase in costs: health insurance companies. UnitedHealth (largest US insurer) is up 4,120% since 2000 vs. 340% gain for the S&P 500.

6) King Dollar

The US Dollar Index is surging again, buoyed by higher economic growth and interest rates in the US relative to the rest of the developed world.

Over the last decade, the dollar index ETF ($UUP) has a total return of over 43%.

Every single currency has depreciated against the dollar over the last 10 years (note: G20 currencies highlighted).

7) Know What You Own

Since the start of 2021, US Inflation (reported CPI) has increased over 17%. At the same time, the Treasury Inflation-Protected Securities ETF ($TIP) has lost 8%.

Naturally, many investors likely assumed that TIPS funds would do well in a high inflationary environment. But similar to other bond funds, TIPS have a sensitivity to interest rates, and while inflation has risen so have interest rates, leading to short-term losses in these securities.

Most people don’t know what they own in buying TIPS (they probably assume it’s the same as an I Bond whose principal value never goes down), which probably explains at least part of the persistently high gap between investor returns and fund returns.

8) Weakness Underneath

It’s been a great year for the 50 largest stocks in the S&P 500, which are still up 24% YTD even after the recent pullback. But the performance of the average stock paints a very different picture with the S&P 500 equal weight up only 1% YTD and small caps down 1%.

9) The Freedom Premium

US large cap stocks ($SPY ETF) have more than tripled over the last decade while China’s large cap stocks have declined 12%.

Investors are increasingly placing a premium on freedom, transparency, data reliability, and shareholder protections. The result: US stocks are trading at valuations (CAPE Ratio) that are 2.6x higher than Chinese stocks.

10) 6% Rates?

The 6% CD is here, but there’s only one catch.

You have to move $5 million or more to JP Morgan Chase to get that rate.

The good news: everyone has access to the highest Treasury yields we’ve seen in a long time. If you’re still earning next to nothing on your cash (national average savings rate is 0.56%), get moving.


And that’s it for this week. Have a great week!

-Charlie

If we can help guide you on your road to wealth, reach out.

Disclaimer: All information provided is for educational purposes only and does not constitute investment, legal or tax advice, or an offer to buy or sell any security. Read our full disclosures here.

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