Trade The Journey

Trade The Journey

The Market Turns

Top of the Morning! I’m writing this insight post, out of town and out of reach of my usual responsibilities. This trip was supposed to be relaxing, but it doesn’t seem like I’ll be doing any relaxing. Usually, it’s a four-hour trip from where I live to the destination but the freeway I usually take was closed due to a historic winter storm. Instead of four hours, the trip took nine hours.

It rained for the whole trip and the winding roads and one-lane highway didn’t make the trip any easier. I drove a little faster than the speed limit suggested to make it to the destination before nighttime. I wasn’t successful and driving a two-lane highway, with no streetlights while it was raining provided me with a memorable experience and not a good one.

But the important thing is, I made it to my destination safely. Next time, I’ll take the precautions needed to make sure that traveling at night in the rain is my last resort.

Moving forward, I posted a new trade review for beginning traders to learn from. I made several mistakes closing the trade which is a part of successful trade management. I had hoped that the trade would be profitable because it feels better to write about a winning trade, however, this is not the case. This is my fifth losing trade in a row but I remain optimistic that my losing streak won’t continue indefinitely. But if it does, I’m ensuring that my losing trades are within my loss limits.

Economy

Existing home sales fell 0.7% in January, marking the twelfth month of falling existing home sales. Homes are remaining on the market for a bit longer, increasing from 19 days in January 2022 to 26 days this past January.  The National Association of Realtors believes that home prices may be bottoming out. Total housing inventory rose 2.1% and the median existing-home sales rose 1.3% from a year ago. There’s currently a 2.9-month supply of unsold homes at the monthly sales pace. First-time-home buyers remained unchanged at 31% of the sales in January.

Distressed sales which include foreclosures and short sales were unchanged from the previous month. The Mortgage banker’s association released a new report this past week detailing affordability challenges for potential home buyers. The study reported that their Purchase Applications Payment Index (PAPI) had risen 0.9% in the past month and is up over 21% from a year ago. The PAPI measures how new monthly mortgage payments vary across time relative to income.

The national median mortgage payment rose $44 this past month which doesn’t seem like much until you see the difference from over a year ago. The total increase from a year ago is $437, putting pressure on home affordability for low-income households. The median mortgage payment was $1964. The national median asking rent in the fourth quarter fell 0.9%, bringing the total to $1,322.

Mortgage applications fell 13.3% from the prior week. The refinance index fell 2% and the purchase index fell 18% from the prior week. The shaky inflation picture has continued to put pressure on yields and mortgage rates. Mortgage rates reversed their downward trend, increasing at a time when homebuying usually picks up.

The 30-year fixed rate for conforming balances rose by 0.23% to 6.62%. The 30-year fixed rate for jumbo loans rose by 0.18% to 6.44%.

New home sales for single-family homes rose by 7.2% in January. The median sales price was $427,000 and the average sales price was $474,400. The supply of new homes totaled an inventory of 7.9 months at the current sales rate. New home sales increased across price ranges, except for the $500,000 to $749,000 and the $750,000 & over ranges. Homes sold during the period rose sharply for the “not started” phase of construction but fell for homes under construction and completed. Homes for sale at the end of the period fell for each stage of construction, except for completed homes which rose slightly.

The highly awaited PCE report for January prices showed that higher prices are stickier than the market and analysts forecasted. The PCE price index rose 0.6% for headline and core inflation. Prices for goods and services both increased 2%.  Food prices rose by 0.4% and energy prices rose by 2%. As reminder current dollars do not account for inflation while chained dollars do.

  • Constant Dollars: weighted by a constant/unchanging basket/list of goods and services.
  • Chained Dollars: weighted by a basket/list that changes yearly to reflect actual spending more accurately. The basket is an average of the basket for successive pairs of years; example of paired years are 2010–2011, 2011–2012, etc.

Disposable income rose 2% for current dollars and 1.4% for chained dollars. Personal income rose by 0.6% reflecting higher wages in the private sector, it also rose for the goods and services-producing industries.  Personal consumption expenditures for durable goods and nondurable goods both fell in December but services spending remains strong. Services spending rose for almost all of the sectors, rising the most for transportation services, housing, utilities and health care. Spending fell for food services & accommodations and other services.

In December, Households decreased expenditures on transportation, furnishings, household equipment & routine household maintenance, clothing, footwear & related services, housing, utilities & fuels but increased spending on health. Communication and education spending remained about the same.

The second revision for GDP showed an increase of 2.7% falling from the first estimate of 2.9%. The GDP price deflator was revised upwards to 3.9% from 3.5%. Personal consumption expenditures were revised down from 2.1% to 1.4%. Spending on goods and services were both revised downward. Exports decreased by 1.6% instead of the original 1.3% reported in the first estimate. Government spending was also revised downward to 3.6% from 3.7%. The personal savings rate rose from 0.5% to 3.9%. GDP shows that the economy is still growing, and inflation has yet to retreat to levels hoped for by the Fed and the market.

Initial claims fell by 3,000 bringing the total initial claims level from the previous week below 200,000 to 192,000. Continuing claims fell by 37,000 to 1.654 million. People are still able to find jobs that lend evidence of a strong employment situation report for February.

Trend: Increasing volatility, retreat from the January highs. Short-term yields are rising again, supporting an upwards trend in the dollar. Higher rates for longer are leading the market into continued turbulence. 

This week’s past cash flow:

Amid looking for new employment, my cash flow crunch continues. I doubt it will change anytime soon, so I must prepare to be uncomfortable for the next few months. I must admit that it’s challenging to moderate your spending when you believe that you should be able to buy the things you want. If I don’t accept this reality, my debt level will steadily rise, as I seek to accommodate my lack of income with credit.

Grade: D+

Reason: I’m making an effort to moderate my spending.

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