We hope that everyone in Argentina left with a full stomach because other than a good meal and a photo-op, not much else came out of the G-20 meeting over the weekend. China and the U.S. agreed to kick the can down the road by 3 months now 4 months (until April 1) to put pencil to paper and try to eliminate some of their trade differences.

The market likes the delayed hike to 25% tariffs on Chinese goods in the short term, but how much longer will this drag out? It took NASA’s spaceship only seven months to fly 300 million miles and successfully land on Mars. I bet that the two countries’ rocket scientists could come up with an optimal China/U.S. trade solution in a few days or weeks. Why don’t we let them while all the current trade negotiators are off beaching and golfing on their winter holidays?

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The trade dinner meeting statement comparison show little commonality…

Only the decision to delay another $200 billion in Chinese tariffs and an agreement on Fentanyl are written up by both countries. If a trade deal wasn’t completed before the mid-term elections, then what has changed to make a trade deal occur in the next four months? Watch this drag out until the 2020 U.S. election primaries.

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Tariff comparison statements

The equally big news last week was the discussion about the Fed’s neutral rate…

The market rallied big on Wednesday after Fed Chairman Powell noted that interest rates “remain just below the broad range of estimates of the level that would be neutral for the economy”. Some took that to thinking that the Fed will only raise one more time and then be done. Of course, the midpoint for the neutral range of estimates is three hikes higher, not just one. And if job growth does not slow and wage inflation continues, then the range itself could move higher.

Fed Neutral Rate Chart

RenMac would also remind you to think beyond Fed Funds rate…

Fed Funds aren’t the problem, at least as we see it. The spread is close to 50bps between FF and 2yr yields, not flat, not inverted, but rather accommodative. The liquidity story is in the supply of money balance sheet), not the price of money (rates), and while a Powell pause may placate a pandering President, the real tightening is taking place thru QT, not the Fed Funds rate.

(Renaissance Macro)


And as the Fed shrinks its balance sheet, you will notice that the 2-to 5-year section of the curve has gone flat…

Fed balance sheet rate chart

It is rarely healthy for the markets when the short end of the curve inverts…

Trevor Noren Tweet

We are also watching closely, Liz…

Liz Ann Sonders Tweet

J.P. Morgan’s other indicators now seeing a slowdown in U.S. job growth…

Carl Quintanilla Tweet

The Fed hopes that the U.S. job market can slow down right now, otherwise…

DEUTSCHE BANK: “If the Fed decides to ignore the trends in the charts below, we run the risk of returning to 1970s-style unanchored wage inflation with an associated bear market in both bonds and equities”

Average hourly earnings chart

Pay attention when the economist at Freddie Mac sends out worrying housing charts…

Leonard Kiefer Tweet

And if you own a home in Dallas, consider selling and renting for a few years…

At least don’t be in an unaffordable mortgage or long three rentals across a stack of credit cards. You don’t want to be represented in ‘The Big Short 2: North Dallas Zero’.

Dallas’s once vibrant housing market is sputtering. In the high-end subdivisions in the suburb of Frisco, builders are cutting prices on new homes by up to $150,000. On one street alone, $4 million of new homes sat empty on a visit earlier this month. Some home builders are so desperate to attract interest they are offering agents the chance to win Louis Vuitton handbags or Super Bowl tickets with round-trip airfare, if their clients buy a home. Yet fresh-baked cookies sit uneaten at sparsely attended open houses…

Dallas, which had the second-strongest annual increase in employment of any metropolitan area in the country in September, helps explain why. Even though the economy in the sprawling metro area has boomed, home prices have grown much faster than wages, and buyers have been straining to afford homes.

Those price challenges have been masked in part by access to cheap credit, but that era is coming to an end. Since the beginning of the year, mortgage rates have risen about a percentage point, to the highest level since 2011.

“We have this huge affordability crisis,” said Ted Wilson, principal at Residential Strategies, a Dallas consulting firm. “With mortgage rates going higher, we’re hitting a ceiling.”



A bit more difficult to downsize a mansion in the Hamptons…

The Hamptons, the chain of moneyed oceanfront villages on Long Island’s Eastern tip, are considered a highly desirable place to be—unless you’re a home seller.

“Every block has a ‘For Sale’ sign,” said Robert Hohmann, who has been trying to move his five-bedroom Southampton house for the past two years. First priced at $3.7 million, the roughly 5,200-square-foot home with a swimming pool is now listed for $2.999 million with Frank and Dawn Bodenchak of Sotheby’s International Realty.

The fortunes of the Hamptons real-estate market are closely tied to those of nearby Manhattan, and the current slowdown is no exception. The Hamptons saw a dramatic drop in activity in the third quarter, with home sales plummeting 13% to 448 from 517 in the same period last year, according to a Douglas Elliman Real Estate market report. That is the third consecutive quarterly decline, said the report’s preparer, appraiser Jonathan Miller, who said he hasn’t seen such a scenario since 2008. Meanwhile, the number of luxury listings (those priced at the top 10% of the market) surged to 452—the highest level in seven years.



NYC is also feeling gut wrenching real estate pain…

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