September 26, 2022

Trading News 101

Forex | Stocks | Commodities | Crypto

Why it’s easier than ever to stoke fear in markets

5 min read

We’re in the social media age in the real world and in markets. Here’s why it’s a dangerous place.

In general, markets are the best way to find the truth about anything. Tech companies can sell a good story but one day it finally comes time to make money and that’s when the salesmen are separated from the great companies.

More broadly, a rising economy can sustain all kinds of flimsy business models because money is cheap. We’re in the stage now where bluffs are being called.

A big one is the housing market, which is at the crux of the real economy and the low-rate world. Prices shot higher during the pandemic and now with borrowing rates jumping, the market is quickly cooling. What happens next is a key cog for the economy.

Memories of 2008 linger and that’s sparked a cottage industry around speculating on a ‘collapse’.

Here’s an example from today:

Sounds compelling right?

Well let’s go through those one-by-one.

1) 20% of listings reduced prices in the past month

Declines in home prices are declines, right? What’s to argue there?

The reality is that normally, about one-third of US homes reduce prices before selling, so 20% is actually a sign of a tight market. Mind you, that number has crept up quickly and is worth watching but homes are generally priced optimistically, that’s nothing new.

2) Mortgage demand lowest since 2001

Again this is true but it’s deceptive. In the US, refinancing a mortgage is something that’s easy to do. The vast majority of mortgages aren’t for buying homes, they’re for refinancing the home you’re currently in. Over the past two years it’s been a bonanza. The combination of QE and ZIRP has made it cheaper than ever to finance. So everyone who was paying +4% on a mortgage could call up a broker and get something cheaper. Why wouldn’t you?

Now that rates are above 5% that activity has dried up, naturally. That tells you plenty about mortgage rates but little about housing.

3) Interest rates doubled

Sure, but that’s old news. Moreover it obscures that mortgage rates started at an extremely low level are only slightly above the highs of the past 12 years and still very low on a long-term view.

4) Refinance demand down 75% YoY

I covered this in point #2. Refis are down because rates are up, simple as that.

5) Inventory up 10% since March

In fact, inventories are up 35% since March. That sounds bad, right? Again, this is a story of inventories falling to multi-generational lows in an extremely tight, extremely hot market.

Does this look like a housing market that’s flooded with inventory?

So what happened here?

The author of this viral tweet, who is trying to sell ” industry leading commentary on the global capital markets” is doing a great job selling something for $899/year. By fearmongering about a ‘housing market collapse’ with grossly-distorted facts, he’s not doing a good job of informing anyone of anything.

The problem is that even if I — with a far greater reach than he has — dispels this tweet point-by-point rebuttal, it’s not likely to get anywhere near as many views.

The social media era is about grabbing attention. Much of what is elevated by the social spotlight is along these same lines. Fear sells. But fear is a liar.

Here’s how I see US housing unfolding.

/ eur
EUR

The euro (EUR) is the official currency of the European Union (EU) and 19 of 27 member states at the time of writing. It is the second most-traded currency worldwide in forex markets after the US dollar.The euro was originally introduced back on January 1, 1999, having replaced the European Currency Unit. Banknotes and physical euro coins subsequently entered circulation only in 2002.Upon its adoption, the euro replaced domestic currencies in participating EU member states. The rise in its value since then and importance in the global market has helped solidify its status as one of the most important currencies in the FX market today.Together with the USD, the currency pair is easily among the most important for forex, given its exposure into the two main economic blocs. What Factors Affects the EUR?There are several factors that affect the euro. Like most currencies, monetary policy is the most influential, which in this case refers to the European Central Bank (ECB).The ECB is responsible for regulating the monetary policy, money supply, interest rates, and relative strength of the euro. Forex traders of the euro are routinely tuned into any decision or announcements from the ECB for this reason.With 19 sovereign member states, the euro is particularly vulnerable to political developments. Recent examples include Greece’s debt crisis and Brexit, among others, which can seriously impact the euro.Finally, economic data from the bloc or from key member states such as Germany, France, Spain, and others are also closely eyed. This includes retail sales, jobless claims, Gross Domestic Product (GDP), and others.

The euro (EUR) is the official currency of the European Union (EU) and 19 of 27 member states at the time of writing. It is the second most-traded currency worldwide in forex markets after the US dollar.The euro was originally introduced back on January 1, 1999, having replaced the European Currency Unit. Banknotes and physical euro coins subsequently entered circulation only in 2002.Upon its adoption, the euro replaced domestic currencies in participating EU member states. The rise in its value since then and importance in the global market has helped solidify its status as one of the most important currencies in the FX market today.Together with the USD, the currency pair is easily among the most important for forex, given its exposure into the two main economic blocs. What Factors Affects the EUR?There are several factors that affect the euro. Like most currencies, monetary policy is the most influential, which in this case refers to the European Central Bank (ECB).The ECB is responsible for regulating the monetary policy, money supply, interest rates, and relative strength of the euro. Forex traders of the euro are routinely tuned into any decision or announcements from the ECB for this reason.With 19 sovereign member states, the euro is particularly vulnerable to political developments. Recent examples include Greece’s debt crisis and Brexit, among others, which can seriously impact the euro.Finally, economic data from the bloc or from key member states such as Germany, France, Spain, and others are also closely eyed. This includes retail sales, jobless claims, Gross Domestic Product (GDP), and others.
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