Market Recap 10/21/22

No real surprises on the economic or market front this week.  But politics was entertaining.  It’s not every year a newly installed leader of a country is ousted only weeks after taking power.  More on the mess in the U.K. shortly.

Let’s touch on the economic news first.  Probably the main report for the week was existing home sales.  No surprises here – they were down again.  Turns out close to 7% mortgage rates will do that.

The corollary of this is an increase in inventory levels.  Active listings are up 34% year-over-year.

Granted, year ago levels were unusually depressed, but if you take a look at the listings in Zillow, there’s a lot of red dots in once hot markets like Seattle.

As a result, the number of price reductions on active listings is up 75% year over year (again off a low base).

Despite the weakening housing market, investors are still betting the Fed is on track to push the Fed Funds rate to 5% by early next year.

But a lot can happen between now and then, just witness the mess in the U.K. the last few weeks.

Is This Any Way To Run a Railroad?

For once the contrary indicator that is The Economist failed to work.

All too often when something makes the cover, events move in the opposite direction.  Not so this time.  Both of the cheery people in the boat above ended up a footnote in U.K. political history this week.  As a matter of fact, Liz Truss set the record as the shortest serving PM ever.

And George Canning doesn’t really count.  He died in office from pneumonia.  He also has the dubious distinction of being one of the only PM’s ever to have fought a duel with a political rival (he’d never shot a gun before, he missed, and his antagonist hit him in the thigh).  Simpler times.

It’s not worth rehashing the details of why Truss’s tenure was so short, but chalk it up to a deficit busting budget launched at the same time inflation is running at multi-decade highs.

As a result, the bond vigilantes came out in force, and U.K. bond prices plummeted (yields skyrocketed – white line below), causing enough chaos in the fixed income markets that the central bank was required to step in.

This is all fainty reminiscent of prior crisis periods in Mexico, Argentina, Greece, etc.  As The Economist notes:

“Number 10 Downing Street may as well install a revolving door. Ms Truss is the fourth consecutive Tory PM to resign; her successor will be Britain’s fourth leader in as many years.”

And as it turns out, one of the prior Tory PM’s is in the running for an encore performance.

Marx got something right – history first repeats as tragedy, then as farce.

Charts We Found Interesting

  • Speaking of crazy political decisions likely to trigger an economic crisis – take Turkey’s interest rate move this week.  Inflation is running at a cool 84% (official figures – actual inflation almost certainly much higher), and the central bank cuts interest rates by 1.5%.  I’m pretty sure it doesn’t work this way.
  • More on residential real estate.  Which markets are most likely to pop?  UBS thinks the following (hey, Canada, we are looking at you!!).
  • Why Canada in particular?  Well, roughly a third of all mortgages are variable rate.
  • Something else that is going down in price, and an argument for why inflation should moderate in the coming months.
  • It’s hard for me to wrap my head around China’s population projections.  A 50% reduction in less than 80 years?
  • Another way to look at it globally.   Changes in working age populations through 2050.
  • Timing is everything.

Have a good weekend.

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