Eye on the Ball

Eye on the Ball

Just a handful of things that have happened in the last 24 hours:

  1. Trump is more or less blowing himself up.
  2. Walmart is buying Jet.com.
  3. Bill Dudley says the Fed will hike rates, when everyone knows he is full of malarkey.
  4. Vancouver housing prices are up 32% year over year, but sales are down 19%.

Any one of these four things would be big news, especially in the dog days of summer. But all four?  It’s crazy out there.

Now, my boss, Ed D’Agostino, once told me that the cardinal rule of free newsletters is to only talk about one thing at a time. I’ve more or less stuck to that over the last two years. But this time, I can’t stay focused. I can’t resist the temptation to dive into the short-term stuff.

So here we go. Put your boots on.

I’ll go in reverse order:

4. Yes. Vancouver housing prices are up 32 freaking percent from last July.

Now, I have written a lot about Canada’s housing bubble both in Street Freak (a little) and The Daily Dirtnap (a lot). I continue to think it is one of the best macro opportunities globally over the next 10 years. If you want specifics, I suggest you subscribe to either of these publications.

This is the classic sign of a top—prices keep going up on lower and lower volume. It’s a textbook, parabolic, blow-off move. I don’t think US housing prices ever moved that violently 10 years ago.

There are also early indications that the 15% tax for foreign homebuyers that’s being applied in British Columbia is starting to work. Sales agreements are being canceled, and deals are falling apart. They will probably reprice at lower levels. You never know, but this could be the one thing at the margin that causes all of Canadian housing to collapse.

I also recently took a housing research field trip to Canada, which I wrote extensively about in The Daily Dirtnap. Another reason to check it out.

3. William Dudley, New York Fed president, said that the Fed could hike in September. Said it was a possibility. But it really isn’t, because it is right before the election.

So why would he say something that is, like, totally false?

The Fed likes to jawbone markets—if Dudley sounds hawkish, then financial conditions might tighten on their own, without the Fed really having to do anything. But the problem is that the Fed has jerked the markets around so much over the years that nobody really pays attention to it anymore.

Think about it: when the head of the New York Fed starts talking in concrete, specific terms about rate hikes, and the market completely ignores him—that is a problem.

The Fed now has serious credibility issues. Which means: monetary policy ceases to be as effective as it used to be. Unless they actually take action and hike rates.

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Now, I have said all along that they will hike rates (for sure) after the election, and they definitely will if the winner is Trump. And I still believe that. Regardless of what Brainard says, Yellen is in charge, and she has expressed a desire to “normalize” rates. Get the political uncertainty out of the way, and that might happen.

2. Jet.com basically takes $20 bills and sells them for $10. That is their business model. I am not kidding. Whoever runs Jet.com has created one of the world’s best and most outrageous loss-making entities. And it just got bought by Walmart for $3 billion!

This is all wrong. First of all, it shows desperation by Walmart. Of course they can’t let Bezos run away with it, they need a real online presence, but have they just demonstrated that they were unable to hire even a handful of smart people to build a website? That they had to buy the ridiculous Jet.com?

Second of all, can you think of the perverse incentives behind rewarding the executives of an utterly intractable business such as Jet.com with $3 billion? I don’t mean to be glib, but it doesn’t take a lot of talent to build a money-losing business. Maybe I should be more charitable—it is downright impossible to compete with Amazon, after all, but Jet didn’t even come close.

And I thought Yo was nuts.

1. Don’t want to dive too deep into politics here—I already poked the tiger two weeks ago. But if the goal for Team Trump is to win, they’re not doing a very good job, falling far behind Hillary Clinton in national polls. I saw the other day that two Whitmans—Meg and Christie Todd, prominent women Republicans—are outright endorsing Hillary. In fact, the whole phenomenon of “Clinton Republicans” is becoming a thing (like the Reagan Democrats 30 years ago).

Unlike Nate Silver and Scott Adams, I am not going to make any predictions (I am much better at predicting markets than politics; Scott Walker was my early pick for the Republican nominee), but I will reiterate my earlier position that either nominee will be fully engaged in a huge fiscal stimulus in 2017. Trump just said he would spend $500 billion on bridges to nowhere. Clinton will one-up him, for sure. Look out, bond market.

I would rather do a swan dive into the Sarlacc Pit than buy a bond in this environment.

And Finally

Thanks to everyone for making All the Evil of This World a success. The feedback has been both great and horrible, which is what I expected. It’s a very polarizing book. If you haven’t bought it yet, head on over to the Amazon page and take a gander at the reviews and decide if it’s maybe for you.


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