Yesterday saw the biggest CPI print yet, with an annualized CPI over 9%. I saw a Tweet Monday night by someone saying that if it was a big print the market could fall hard and if it was light it would have a monster rally, but after the news the market actually didn’t move that much and the VIX went down even though the market went down a bit too. Tuesday was a day of no real action and no real fear. It was a dull day among what seems to be many dull days now for the markets.
On one hand this single piece of news isn’t that important as the course is set.
One inflation reading just isn’t going to change anything.
On the other hand, there simply are not as many active traders in the market now as there were a few months ago, with millions wiping themselves out, and market liquidity is vanishing. This is helping to create what is essentially a slow motion bear market and at this point there is nowhere to hide, but the drops are not fast enough to make people react. It’s just a slow drip drop, but the longer this goes on the more economic impact there will be and eventually there will be a panic.
Back in 2006-2009 I followed the real estate futures market to get an idea of what real estate prices were going to do and found them to be an accurate forecasting tool. Here is what the futures are projecting now.
The futures contracts forecast a peak in national real estate prices now and for a slight decline of around 15% to play out between now and third or fourth quarter of next year.
A few months ago they were forecasting a trough in prices in the first quarter of next year, but now that looks like it has been moved out into the third or fourth quarter.
That suggests that we are in a cyclical downturn in the economy now that will come to an end in the second half of next year.
Well now you know one of the reasons why the stock market has been falling!
It also makes it so that there is a good chance that this bear market won’t make a real bottom till next year.
However, I’m not going to make any predictions based on that.
As long as the market is trading the way it is now, in a slow motion bear market with no fear or panic, then I’ll keep assuming that the bear trend is going to continue, but once there are signs of a real panic I’ll be looking for a bottom to buy, whether that comes this Fall or next year. It’s not about predicting the future, it’s about realizing that the market is in a bear market and waiting for it to come near an end.
I like real estate as a long-term investment and put 14% of my money into high dividend paying REIT stocks back in the Fall of 2020 and the RWR ETF in my IRA, but I sold out of most of that a few months ago due to the overall bear market conditions and now that ETF is below its 200-day moving average in a stage four bear market.
However, notice that the RWR/SPX relative strength ratio is going sideways this year with a slight uptrend. That means it is not lagging the S&P 500 and has firm relative strength.
Those are the type of ETF’s and sectors worth buying after this bear market is over as they’ll likely lead the next bull cycle.
The past fad leaders of the last cycle won’t be the hot things of the next one; laggards are financial millstones.
In markets you have to look ahead and not backwards.
The fad plays are dead money and so is crypto even if most Robinhood traders are still trying to HODL on so to speak.
Real estate is not going to crash like 2008, but is simply going through a correction. There is value in real estate that has a functional use in the real world and zero real value in crypto, which exists simply as speculative fictional capital with no purpose in the real world.
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-Mike
