Some Sanity Regarding the Housing Market
Trader Scott’s Market Blog
January 21, 2017
Donald Trump hit the ground running after his Inauguration on Friday,when two hours into his Administration he suspendeda planby Barack Obama to slash premium rates on some federally backed mortgages. The plan would have lowered FHA premiums by a quarter point. It’s an interesting first step for a President who made his fortune in RE. Housing should be used for shelter, not for speculation. Rapidly rising house prices do not strengthen a nation, they weaken a nation. Capital needs to go into productive enterprises. Housing on a net basis is not productive at all. It sucks capital away from truly productive endeavors. But politicians love giving out “freebies”, and virtually everyone is convinced that a strong housing market is a sign of a strong nation. And politicians want to look like they have big hearts, and care about us all. So they have piled one subsidy after another onto housing since FDR. He decided his “well-intentioned” Housing Act of 1934didn’t screw things up enough, so that was followed by the Housing Act of 1937. So thanks FDR and all of the big hearts in the government since then. I’d also like to thank the geniuses at the Federal Reserve, along with the Wall Street debt creation assembly lines, for completely distorting every nook and cranny of the credit markets. We are now in a situation where decent, honest people like the McDowell family, can not remotely afford to own their own home in a nice neighborhood. And the home ownership rate continues to fall, while rental prices keep outpacing overall inflation, squeezing more people. Millions of Americans wittingly and unwittingly became RE speculators during the housing boom and crash. While we can’t let individual homeowners off the hook for their actions, my disgust is directed at the three aforementioned “well-meaning” entities. We are ending a 35 year bond bull market. What happens in the multi-decade bond bear market to follow? All credit markets are completely distorted, and any sector intricately tied to interest rates is very concerning looking down the road. RE is likely to continue to morph into a cash only purchase, as the bond bear market intensifies next year and beyond. And what happens when the Trump Administration gets out of the mortgage financing business, as the Treasury nominee Steven “IndyMac” Mnuchin recently said. So once again, how are rapidly rising home prices good for a country?
Trader Scott has been involved with markets for over twenty years. Initially he was an individual floor trader and member of the Midwest Stock Exchange, which then led to a much better opportunity at the Chicago Board Options Exchange. By his early 30’s, he had become very successful in markets, but a health situation caused him to back away from the grind of being a full time floor trader. During this time away from markets, Scott was completely focused on educating himself about true overall health and natural healing which remains a passion to this day.Scott returned to markets over fifteen years ago where he continues as an independent trader.
January 23, 2017 @ 1:55 am traderscott
On Thursday morning, I left a comment about the $ being at resistance, and to watch the $ vacillate in here between resistance and support. And also watch the running of sell stops, the Ending Action and then the bounce. The arrows are on this chart. The $ is back around support, and like the other situations, first needs to break support to even begin to set up a trade for me. And this longer term chart, with the bigger view support areas.
January 23, 2017 @ 6:57 pm Fen
There’s a gap around 100.70 area. Do you see the gap being filled? Does gap play any sinificance role?
Thank you Scott for the great post.
January 23, 2017 @ 8:57 pm traderscott
Yes Fen I do see it being filled and definitely gaps are significant – they help to mark off support and resistance areas for entering or exiting, but you have to use them in a relative way depending on time frame. And also they need to be viewed in light of the technical position of the market heading into those areas. A market in a strong uptrend, with no Ending Action, will not need much backup to get thru a gap. And is the overall market still in an uptrend or a downtrend into those gaps. So for the intraday one at 100.70, it will play a role for shorter term trading. But look at this GDX chart. I have several times talked about how $32 is the dividing line between the miners continuing to be in an accumulation area vs. finally breaking thru that powerful gap, and the uptrend will be in full gear. And that’s very important, because accumulation markets have much different characters/personalities than uptrending markets. So the tactics/approach needs to be totally different. And look at the role gaps have played on the way down/intermediate-term downtrend, and those gaps will also play a role again, once again depending on our own time frames.
Even though I still have a large long position in US$s, I’ve given numerous warnings about the overwhelming bullishness, and people became so bullish right into a very big resistance area, thus the need for a decent sized backup in the $. None of this was a surprise, so Trump talking down the $ is just part of the process. They can drag this process out if they want, but it won’t change the situation of the huge global $ short position/upward pressure. That position has got to be unwound, and only a higher $ will accomplish it. Talking down the $ won’t solve anything.
January 24, 2017 @ 10:05 am PRice
Thanks for the gap explanations!
A request for your new site – use categories and/or tags not only for the post, but also for comments. I’ve bookmarked several of your posts in Firefox, but I haven’t found that adding a term like “gaps” to the bookmark’s tag or keyword or description is obvious enough at a glance to later understand why I bookmarked it.
January 24, 2017 @ 10:16 am traderscott
That is a fantastic idea – sent it to the tech guy. I spend too much time trying to find stuff in comments. Thank you PRice. The comments section will be real time, they’ll show up when you hit enter – more user friendly.
January 23, 2017 @ 7:22 pm Jon
$ broke to 99.91 after Mnuchin “strong dollar” comment. Comex PM options expiry Thursday and OTC through next week so PM capping. As the famous American philosophers Sonny and Cher said ” the beat goes on”…
January 24, 2017 @ 2:04 am traderscott
Definitely some groupthink going on now with the $ “breaking” below 100, thereby “confirming” the top is in. It was just a few weeks ago, they were all convinced – and someone actually said this with the $ over 103 – nothing can stop it now. What happened to the Trump US$ bull market mantra.